Table of Contents
- What is chapter 7 Bankruptcy?
- What debt can be erased with chapter 7?
- Should I file for Chapter 7 bankruptcy?
- Chapter 7 can be helpful, but qualifying may be difficult
- You can't file for Chapter 7 on behalf of a big business
- You must pass the bankruptcy means test
- You can't have a recent bankruptcy discharge (or dismissal)
- You have to get credit counseling
- You'll need to pay a filing fee
- Talk to an attorney
- What if you don't qualify for Chapter 7 Bankruptcy?
Are you drowning in debt and looking for an alternative to get rid of it once and for all? If so, you may eventually consider filing for bankruptcy to achieve this. Although many people think that bankruptcy is a completely destructive process, the truth is that it is a legal option to eliminate most of your debts and get a fresh financial start.
If you are thinking about filing for bankruptcy, you may find yourself having to decide what kind of bankruptcy you will file for. In most cases, you will have to choose between two different types of bankruptcy: Chapter 13 bankruptcy and Chapter 7 bankruptcy. If you have a steady income, Chapter 13 bankruptcy may be more suitable for you.
But, if you have no income or if you need a quicker and more efficient solution to your debt problem, you may want to opt for Chapter 7. However, you should keep in mind that qualifying for this type of bankruptcy may be more difficult than it seems. Below you will find the requirements you must meet to qualify for a Chapter 7 debt discharge.
Now, if you are not sure which type of bankruptcy best suits your case, or if you would like professional advice during the process, you should talk to a Chapter 7 bankruptcy attorney in Los Angeles. This city is home to many experienced attorneys ready to help you at any time, such as KT Bankruptcy Lawyer. This bankruptcy law firm offers completely free initial consultations, so don't hesitate to contact them if you have any questions.
What is chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, is a powerful legal tool that can help you eliminate most of your debts, giving you a fresh financial start. It's the fastest bankruptcy chapter of all, so if you want to get rid of your debts in the shortest amount of time possible, it may be the option you're looking for.
Now, how exactly does it work? If you can qualify for this type of bankruptcy chapter, you will initially have the opportunity to exempt some of your assets from being affected during the bankruptcy process. Exemptions will usually include your home, furniture, car, clothes, and all the things you need to live.
Subsequently, a bankruptcy trustee appointed by the court will be in charge of administering your non-exempt assets. The trustee's job is to sell your nonexempt assets and utilize the money from the sales to pay off your creditors. However, it is possible that the exemptions will cover all of your assets, and you may not have to sell anything at all.
After your non-exempt assets are sold, or your case is determined to be a “no-asset case,” the bankruptcy court will issue a discharge, which will eliminate most of your debts. You will then have a fresh financial start and the opportunity to rebuild your finances from scratch.
What debt can be erased with chapter 7?
Bankruptcy can help you eliminate your unsecured debts, also known as “dischargeable debts.” For example, the following debts would be eliminated by this type of bankruptcy:
- Credit card debts.
- Medical bills.
- Most auto loans.
- Personal loans.
- Debts incurred from lawsuits.
- Utility debts.
Now, Chapter 7 may be able to get rid of most of your debts, but it won't be able to get rid of all of them. Some debts that cannot be eliminated through this type of bankruptcy are the following:
- Student loans.
- Alimony, Child Support.
- Recent income taxes.
- Other “secured” debts.
Should I file for Chapter 7 bankruptcy?
There are many warning signs that you should start considering Chapter 7 bankruptcy to get rid of your debts:
- If your debts are greater than your annual salary, it may be too late to opt for other options.
- It will take you too long to pay off your debts (5 years or more), even if you take desperate measures to do so.
- If your debts are toxic for your personal life and mental health, it may be time to pursue bankruptcy.
- You have no residual income; you use most of what you earn to pay off your debts.
- Your monthly income is less than the average for your state.
These are just some of the most prominent signals that you should start considering Chapter 7 bankruptcy. If you heed these warnings, you will be able to prepare for your filing in advance.
Chapter 7 can be helpful, but qualifying may be difficult
Thanks to the many advantages that Chapter 7 bankruptcy offers, it is likely that you will consider it to be your ideal option. However, as mentioned above, qualifying can be quite complicated. There are certain requirements to keep in mind if you are thinking about filing for Chapter 7 bankruptcy.
You can't file for Chapter 7 on behalf of a big business
Consumer Chapter 7 bankruptcy and business Chapter 7 bankruptcy are fairly different processes. Therefore, you cannot file a Chapter 7 consumer bankruptcy on behalf of a corporation, LLC, or partnership. Those who can file for this type of bankruptcy are individuals, married couples, and in some cases, small business owners.
You must pass the bankruptcy means test
The bankruptcy means test is designed to determine if your income is low enough to qualify you for Chapter 7 bankruptcy. Its purpose is to prevent high-wage earners from taking advantage of the benefits of this type of bankruptcy. However, this does not mean that you must be completely penniless to file for Chapter 7 bankruptcy.
To determine if you qualify for this type of debt relief, the means test compares your monthly income to the state median income for an individual or a family of your size, depending on the case. If your income is higher than the state median, you may not qualify for this bankruptcy chapter.
Furthermore, the means test will also determine if you have enough residual income to repay your debts. This is done by deducting certain monthly expenses from your monthly income. The higher your residual income, the less likely you are to qualify the means test.
You can't have a recent bankruptcy discharge (or dismissal)
The law provides limitations to prevent abuse of the bankruptcy process. Among them is that you must wait a few years before you can file bankruptcy again, to prevent people from accumulating debts and getting rid of them indiscriminately. If you filed for Chapter 7 bankruptcy, you would have to wait 8 years to file again. On the other hand, if you previously filed for Chapter 13 bankruptcy, you will have to wait 6 years before filing again.
On the other hand, if you previously tried to file bankruptcy and your case was dismissed for any reason, such as filing inaccurate information, violated a court order, abused the system, or made a fraudulent filing, you will have to wait up to 180 days to try again.
You have to get credit counseling
Before any bankruptcy filing, you will need to receive credit counseling from a government-approved agency. You don't have to do this before you start your filing, but you must complete credit counseling 180 days before you get your discharge.
Note that part of the credit counseling involves a two-hour financial management course. However, not all agencies that offer this service are nonprofit. That means you may have to pay a fee to take this course. If you don't have enough money to pay for it, you can look for lower-cost options. However, you should make sure you get credit counseling on time to avoid having your case dismissed.
You'll need to pay a filing fee
Another thing to keep in mind during your bankruptcy filing is that it won't be free. A Chapter 7 bankruptcy filing costs $338. Additionally, you will have to pay around $60 for credit counseling courses. However, if your income is low enough, you may qualify for a waiver.
Talk to an attorney
The bankruptcy process can be quite complicated if you are unfamiliar with it. So if you are thinking about filing for Chapter 7 bankruptcy but are unsure if you qualify, you may want to speak with a Los Angeles bankruptcy attorney who has the necessary experience to guide you every step of the way.
The attorney will evaluate your case thoroughly and determine the best course of action to get the financial fresh start you so urgently need. Most Los Angeles bankruptcy lawyers offer free consultations, so feel free to contact them to find the right attorney for your case.
What if you don't qualify for Chapter 7 Bankruptcy?
The fact is, not everyone will qualify for Chapter 7 bankruptcy. If your income is too high and you cannot pass the means test, you may want to consider Chapter 13 bankruptcy to get rid of your debts. Of course, this process is lengthier, but it may also help you get rid of your debts. Moreover, you may be able to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy even after you start the process.
On the other hand, if you need to clean up your business debts, you will not leverage Chapter 7 personal bankruptcy to do so. However, you have two options for accomplishing this: Chapter 11 bankruptcy and Chapter 7 business bankruptcy. To find out which option is best suited to your case, you should speak with an experienced bankruptcy attorney.
Thank you for reading!