Is Chapter 7 Bankruptcy an Option for You?
Posted by Tom Morgan in Bankruptcy
Words in this Post: 455
Print This Post
After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Chapter 7 bankruptcy became difficult to qualify for. The first hurdle is a “means test,” which looks at your income relative to others in your area. If you don’t qualify under the means test, you can still try to qualify if your income and expenses are in line with the government requirements, but as detailed calculations are needed to decide this, you should retain the services of a bankruptcy lawyer to make sure your calculations are sound. However, the old days of simply convincing a judge that you need Chapter 7 are gone—the new system has specific rules and limits.
Chapter 7 is typically the bankruptcy type of choice for people who have large credit card or other unsecured debt and few assets. If there’s a risk that you might lose your home or car under Chapter 7, your lawyer may recommend that you file Chapter 13 instead. If you have more equity in your car or home than the exempt amount allowed by your state, the chance of being forced to relinquish these assets to be sold to pay your creditors is high.
Debts That Can’t Be Forgiven or Discharged
Some debts may not be dischargeable in a Chapter 7 bankruptcy if a creditor challenges them. These include:
- Debts you incurred by fraud, such as those obtained with false information on a credit application
- Credit purchases over a certain amount in the sixty days prior to filing
- Loans or cash advances over a certain amount in the months prior to filing
- Debts you owe under a divorce settlement or decree, with certain exceptions
Chapter 7 Bankruptcy: Liquidation
Under Chapter 7, liquidation, you turn most of your persona property over to the court, which appoints a trustee to sell the property and use the proceeds to pay off all or some of your debts. As in Chapter 13 bankruptcy, you’re allowed to keep certain exempt property, but to keep secured property such as your house, car, or furniture you’re buying on credit, you have to sign a Reaffirmation Statement stating that you agree to be responsible for those debts. You basically promise to pay on the debt going forward, and you give up the protections of bankruptcy on that property.
Once you’ve signed the Reaffirmation Statement, these debts can’t be discharged for at least six years. In other words, you can’t change your mind in a few years and decide you don’t want those assets and don’t want to be responsible for paying for them. In order to reaffirm the debt, you have to make any payments necessary to bring your account up to date.
A Chapter 7 bankruptcy stays in your credit history for ten years. During that period, you may be denied credit.
Author: Tom MorganPlease Rate This Article
(No Ratings Yet)
Loading ...Tags: Bankruptcy, chapter 13, chapter 7
You must be logged in to post a comment.