Chapter 7 Considerations

A Chapter 7 Bankruptcy is the simplest and most common type of consumer bankruptcy.  A debtor who qualifies, will have much of their debt eliminated and given a chance to rebuild their credit.  A Trustee is appointed to liquidate the debtor’s non-exempt assets in order to pay off their creditors.

In order to qualify for Chapter 7 Bankruptcy, one must pass a “means test.”  A means test considers the debtors income, expenses, secured (auto loan, mortgage) and unsecured (credit card bills, medical bills, personal loan) debts.  Furthermore, the debtor must earn less than the average income for their area.

Not all of your property must be sold under a Chapter 7 Bankruptcy.  While the law varies from state to state, it allows for reasonable exemptions, up to certain dollar values.  Often, the debtor can keep their car, clothing, furniture, television and other household items needed for everyday life.  There is a jewelry exemption, so you don’t have to sell your wedding ring!  Again, there are limits on the value of these items, but if you qualify for a Chapter 7 bankruptcy, odds are your property does not exceed them.

Generally, it takes about three to four months to file a Chapter 7 Bankruptcy and have your debt discharged.  When discharging your debt, the Court will enter an order barring creditors from making any further efforts to collect the debt.  That means no more threatening letters or phone calls!  Additionally, while filing for Bankruptcy will have a negative impact on your credit rating, once the debt is discharged you can begin rebuilding your credit almost immediately.  Simple credit counseling is required both before and after you file for bankruptcy to help ensure you will not find yourself in the same situation down the road.