What is Chapter 7 Bankruptcy?
The U.S. Bankruptcy Code has multiple forms or chapters of bankruptcy that allow individuals to discharge certain debts. Chapter 7 bankruptcy is a form of bankruptcy for individuals who want to remove as much debt as possible, which is why it is sometimes called the “fresh start” bankruptcy. Chapter 7 is the most common form of bankruptcy.
Chapter 7 is not for everyone with debt, of course. We typically recommend Chapter 7 to people with overwhelming debt when other debt resolution options will likely not work. No matter what the details of your situation are, we will not rush you. Our team takes pride in finding the right choice for everyone who comes to our firm while always putting their worries at ease.
What are the Pros and Cons of Chapter 7 Bankruptcy?
Chapter 7 bankruptcy could be exactly what you need to get real, lasting relief from debt.
Benefits of Chapter 7 bankruptcy include:
- Ability to discharge large amounts of debt at once.
- No obligation to repay a percentage of that debt.
- Debt discharge happens quickly once approved. The typical case lasts 110 days although you receive relief from creditors the first day the case is filed.
- Creditors cannot harass you while your case is pending.
- A “fresh start” can revitalize you.
On the other hand, every legal process can come with disadvantages. Chapter 7 bankruptcy is no exception.
Two disadvantages of Chapter 7 bankruptcy are:
- Property risks: Unprotected assets and property could be at risk. Our attorneys will focus on protecting your property to the full extent the laws allow. If there is a risk, we will discuss it with you to offer your best options.
- Credit score damage: Filing for bankruptcy can be harmful to your credit score. However, it is always possible to repair your credit score. Most decreases are only temporary. Keep in mind that most people considering bankruptcy are already facing credit score issues before filing.
Deciding to pursue a Chapter 7 bankruptcy filing will be easier when you know more about the potential advantages and challenges. Our Chapter 7 attorneys are happy to help you explore and understand these factors in more detail.
What is the Chapter 7 Means Test?
Eligibility for Chapter 7 bankruptcy is restricted only to people who can pass the bankruptcy code’s “means test.” Basically, you need to show that you cannot afford to pay back your debt without assistance. This test requires you to prove that you need to file for bankruptcy, especially when compared to others in your area.
The means test compares your gross income throughout the prior six months and compares it to the median household income in your state. If you make more than the median income, then there is a more rigorous analysis to determine if bankruptcy is a possibility. The court will use IRS guidelines for expenses, plus several of your personal expenses, to determine if you can afford to pay a meaningful amount of your debt back over the next 3 to 5 years. Just because you are over the median income does not mean that you cannot file. If, after the means test, you show you can afford to pay back some of your debt, the bankruptcy court will require you to explore other options first, like a Chapter 13 debt adjustment plan.
For more information about Chapter 7, please call (888) 405-2519 and talk with our Chapter 7 bankruptcy attorneys.
