CHAPTER 7 BANKRUPTCY

For individuals or even companies, who have excessive debt such as medical debt, home loan, credit card debt, vehicle debt or other various loans or lines of credit; Chapter 7 will allow one to discharge these debts and get a fresh start.

Chapter 7 is not a repayment plan like Chapter 13.  In Chapter 7, the bankruptcy Trustee will gather and sell the debtor’s non-exempt assets, then use the proceeds if there are any, to pay off the debts.  Each State has exempt assets, so debtor will be able to keep certain assets and still discharge their debt.

To qualify for Chapter 7 the Government will look to the “mean test” to see if filing Chapter 7 is presumptively abusive or you do qualify for Chapter 7.   This is a formula the Government uses to see if filing Chapter 7 would be abusive and should instead be a Chapter 13 repayment plan.  Depending on your median income, you may not even have to complete the the whole “mean test.”  If your household income is under the median household income for your state, you qualify for Chapter 7.

The “means test” looks to see if the debtor’s current monthly income is more than the state median, if so, the Bankruptcy Code will apply the ” mean tests” to see if filing Chapter 7 would be presumptively abusive.  Abuse will be presumed if your aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than $12,850, or 25% of your non-priority unsecured debt, as long as that amount is at least $7,700.  If you fail these test and filing Chapter 7 would be abusive and you can not overcome this presumption by showing an exemption, you will most likely qualify for Chapter 13 if you consent or have your Chapter 7 dismissed.

Filing Chapter 7 is about a fresh start.  Its primary purpose is to discharge the debtor of most debts, thus a fresh start.  Some debts are non-dischargable, such as money owed to the I.R.S.. See the United States Courts’ website for more information here.