What is Chapter 7?
Chapter 7 is often called straight bankruptcy and the most common among all bankruptcy chapters. It allows the debtors to eliminate most of their debts within three to six months from the date of the bankruptcy filing.
This type of bankruptcy is commonly used by individuals who don’t have enough income to pay back what they owe to their creditors. It pays off most of their unsecured debts through liquidation of assets to help them gain a fresh start and rebuild their credit in six months. Chapter 7 bankruptcy also provides immediate bankruptcy protection to the debtor once all necessary paperwork has been filed in the United States Bankruptcy Court with the aid of a bankruptcy attorney.
How Much Total Debt You Would Need to File for Chapter 7 Bankruptcy
There is no minimum amount of debt that you should owe to be able to file for a Chapter 7 bankruptcy.
Does that mean anyone who wants to get out of debt is qualified for Chapter 7?
Short answer – No.
Not everyone can qualify for a chapter 7 bankruptcy. The United States bankruptcy code would require you to take a two-part means test to determine eligibility.
The first part of the means test determines whether your total family income is lower than the median income. Suppose your monthly payment is higher than the state median. In that case, the court will then proceed to the second part of the test. They will consider your monthly living expenditures, secured debt payments, and allowances for three months to determine if there would be enough disposable income to pay all your debts. When the result of this test shows no disposable income, then you qualify for Chapter 7.
What to Do When You Qualify for Chapter 7
- Pay bankruptcy fees, file the correct bankruptcy forms detailing your properties, debts, income, and expenses to begin the official bankruptcy proceedings.
- Complete credit counseling from a court-approved nonprofit credit counselor.
- Meet with a court-appointed United States bankruptcy trustee. The bankruptcy trustee handles and determines whether your assets can be liquidated and use the money to pay back your creditors.
- File for a bankruptcy exemption if there is personal property you want to save from being liquidated.
- Reaffirm your secured debts. A secured debt is a loan with collateral which the creditor can take when you default. Reaffirming your debt allows you to continue paying for the loan with the same terms or payment plans.
Once the court has determined your eligibility, the next thing you need to do would be to hire an exceptional bankruptcy lawyer from a respected bankruptcy law firm in Michigan. The bankruptcy attorney will assist you in the steps mentioned above of your bankruptcy proceeding to attain financial freedom. They can also attend the meetings on your behalf and guide you in filing for motions or objections when necessary.
Type of Debts Eligible for Dismissal After You File for Chapter 7
As mentioned earlier, bankruptcy will eliminate not all debts after a bankruptcy was filed and discharged.
A bankruptcy petition will eliminate most of your debts except
- Child Support
- Payment to an injury you have caused
- Some fines and government debts, and
- Student loans.
Debts that can be discharged are your
- mortgage payment
- car loan
- unsettled medical debts due to large medical bills
- credit card debts
- personal loans
- past due utility bills, and
- wage garnishments (legal withholding of paycheck to pay off a lender).
Benefits of Filing Chapter 7
Filing for a bankruptcy petition is a long process, but there are some benefits to it:
Once you fill out and file a bankruptcy form, the federal court will issue an automatic stay. This stops creditor harassment to collect for debt payment, foreclosures, repossession, and garnishments.
At the end of your bankruptcy case, the court will take off all your legal obligations to pay your qualifying debts.
Bankruptcies can hurt your credit a lot, but so as being in debt for a long time. When the bankruptcy proceedings end and most of your qualified debts are eliminated, you can always start to get you back on track and rebuild your credit again. Yes, a bankruptcy can stay in your record for years, but there are some debtors who filed for bankruptcy and have better credit within a few months or a year from being discharged.
Can the Court Deny You from Filing for Chapter 7?
There are several reasons for the court to deny a debtor from successfully filing chapter 7, and some of those reasons are:
- You have enough income for debt repayment
- You have a previous bankruptcy discharge – For you to qualify again, you need to wait eight years from the time the previous discharge was obtained.
- The court has determined that you committed bankruptcy fraud. A fraudulent bankruptcy act happens when you conceal assets, or lie about your income during a credit application.
Other Bankruptcy Chapters You Can Check
If you feel that filing for chapter 7 is too much and that you wouldn’t qualify anyway since you still have disposable income left even after expenses and allowances.
You can either file for Chapter 13. It is a bankruptcy proceeding that allows you to undergo restructuring or reorganization of your finances with the close supervision of the bankruptcy court.
Do You Need to Hire a Bankruptcy Lawyer?
Absolutely! It is always advisable to seek legal help to protect the assets you wish to keep and not commit any grave mistakes while filing for bankruptcy. An experienced Royal Oak, Michigan bankruptcy lawyer who provides bankruptcy services can make your bankruptcy journey easier. If you think the attorney fees are too expensive, you can always ask first for a free legal consultation.