Questions about Chapter 7 Bankruptcy


What is a Chapter 7 Bankruptcy Filing?


Basically, this type of bankruptcy is a liquidation bankruptcy that has been designed to allow the debtor to start again with a fresh slate, since it removes most debts. In return, you allow the trustee in bankruptcy to sell / liquidate all your property that is deemed to be non-exempt, so that your creditors will receive some funds, which will partially repay money that is owed. In some cases, those who are filing for this type of relief are more likely to keep their possessions, as they rarely own non-exempt property.


Is It Difficult to Qualify for Chapter 7 Bankruptcy?


In 2005, the United States Congress revised the bankruptcy laws, and changed the qualification criteria for those who are considering a Chapter 7 filing. These new rules set out specific qualifications, which a debtor must meet, in order to proceed with a Chapter 7 filing. This ultimately took the decision making process, out of the hands of the courts, and put the determination of eligibility on the legal representative and the debtor.


This new criteria takes the income of the debtor, and compares it to the median income for that state, as a first step in the qualification process. When below the median income, the debtor will normally be able to proceed.  This is not a given, and the judge may ask the debtor to consider a Chapter 13 filing, if the judge believes the debtor has enough income for funding a Chapter 13 filing.


Should the debtors income be over what is the median income for that state, then the new criteria outlines how to assess whether or not the debtor has some expenses and some payments of debt that can be made due to their higher income. This would be set out in a repayment plan for the debtor to follow. If this is the case, the debtor should consult with a bankruptcy attorney in order to determine the best course for proceeding.


If I File For Bankruptcy Under Chapter 7, Are My Unsecured Debt Removed?


Normally most unsecured debt is wiped out when a Chapter 7 bankruptcy filing is discharged. Your unsecured debt must not be encumbered by an property, which could include a home or car. Unsecured debt may include items such as hospital bills, doctor bills, and credit card balances currently owed.


Some debt, which is considered to be unsecured, may not be wiped out. If you owe child support, spousal support, recent debt for luxury items, student loans, any debt based on fraudulent activities, and debts owed to tax agencies that apply to the previous three years, you will still be responsible for these commitments.


When Filing for Chapter 7, Can I Keep My Home If My Payments are Current?


If you have equity in your home, that is considered exempt, then you will be able to retain ownership of your home. Chapter 7 bankruptcy laws allow people to retain a certain amount of home equity in this type of filing. It’s referred to as a homestead exemption, and usually varies by state. If all your equity in your property is deemed exempt, then the trustee in bankruptcy may not use these monies to pay any of your unsecured creditors. You will be able to maintain ownership of your home.


Will I Be Required to Forfeit Property when I File a Chapter 7 Bankruptcy? 


There are conditions where a trustee in bankruptcy will sell a debtor’s property, so that unsecured creditors will receive some funds. It’s important to remember, that all states have a set amount, which debtors can keep, and this is referred to as exempt property.


This means that a state may exempt items that include a car, (with limits), clothing deemed to be necessary, house furnishings, appliances, tools of a trade (with limits), personal effects, a person’s pension(s), equity in a home (with limits), and public benefits.


There is an extensive list of things deemed to be exempt when filing a Chapter 7 bankruptcy. Before proceeding, those considering this type of action should confer with a legal representative to ensure this is the best course of action for their situation.


To get help with your bankruptcy issue from a competent attorney, call Legal Solutions 2 U today at (855) 77 LAW 2 U (855-775-2928).