Chapter 7

Known widely as “liquidation” or “straight bankruptcy”, Chapter 7 bankruptcy provides filers with protection from their creditors and relief from many of the debts that have overwhelmed and burdened them. It will allow you to clear most of your outstanding debts quickly and get a fresh start in your financial life.

To qualify for a Chapter 7 bankruptcy you must make less than the median income for people in your area. If your income is above the median income level in your area, you may still be eligible for Chapter 7 protections, but you will have to undergo a means test to determine how much disposable income you have.

To determine this, your monthly expenses for rent, utilities and payments on items not included in the bankruptcy will be deducted from your monthly income. Your disposable income is then multiplied by 60 to see how much money would be available to pay your unsecured creditors over a five year period. If this total is $10,000 or more, you will not be eligible for Chapter 7 bankruptcy and will be required to enter into a Chapter 13 bankruptcy repayment plan. If your disposable income totals less than $10,000 in a five year period, there is still more to the means test. If your disposable income is $100 a month or more, and the total over the five-year period is equal to 25 percent of your unsecured debt included in the bankruptcy, you will be required to file a Chapter 13 bankruptcy. If your disposable income is less than $100 a month, you will qualify for Chapter 7 bankruptcy protection.

Under Chapter 7 bankruptcy, you will have the ability to keep all of your exempt assests. Exempt items differ from state to state. Generally they will include retirement savings in approved pension, 401k and individual retirement accounts (IRA). The often include a homestead, vehicle and personal items.

Some debts are not eligible for discharge in bankruptcy. Child support payments, student loans and most tax debt will not be discharged in bankruptcy.

For more information on the protections available under Chapter 7 bankruptcy, call The Guerami Law Firm and schedule your FREE appointment.