While there are several types of bankruptcy, Chapter 7 may offer advantages for people who wish to wipe out most of their financial debts.
Many Americans are unable to break free from the burdens of excessive medical expenses, credit card debt and a myriad of other financial troubles. For some people, bankruptcy offers a way for people to manage their debt and get a fresh financial start in life. While people filing for bankruptcy have several options, Chapter 7 continues to be the most popular. According to U.S. Courts, over 936,000 people filed for bankruptcy in 2014 and 619,069 of those cases were for Chapter 7. Before filing for bankruptcy, people should understand how Chapter 7 works and why it may be advantageous for some.
Qualifying for Chapter 7
In order to qualify for Chapter 7, debtors must pass a means test. This test determines whether the filer's income-to-debt ratio falls below the state median. According to the American Bar Association, people who have an income that falls above the state median may have problems qualifying for Chapter 7 and may be better suited for a Chapter 13 bankruptcy. Approximately 180 days before filing for Chapter 7, debtors must complete a credit counseling course.
Chapter 7, otherwise referred to as liquidation bankruptcy, allows people to wipe out a good portion of their debt and start clean. However, in some cases, people run the risk of losing property that is not exempt under U.S. code. According to Cornell University, debtors may hold onto the following during a Chapter 7 case:
- Retirement funds, life insurance benefits or money that is held in a 401k plan
- Household furnishings, appliances, musical instruments, clothes and jewelry that does not exceed a set maximum value
- Medical equipment and supplies that are prescribed to help the debtor live with a health condition
- Any items that are needed for the filer's profession
- Under certain conditions, debtors may be able to hold onto their cars and/or homes
Each Chapter 7 case is unique, and it is up to the discretion of the trustee presiding over the case to determine what the filer can keep, and what items may be distributed among the creditors.
When to get legal help
Although people are not required to have an attorney during the bankruptcy process in California, many people choose to seek legal counsel from a lawyer. An attorney may help to ensure that people file all of the proper paperwork and meet the stringent deadlines associated with filing for bankruptcy. A lawyer may help to simplify an otherwise overwhelming process.
Keywords: bankruptcy, Chapter 7, Chapter 13, debt