Is Chapter 7 Bankruptcy Right For You?
Chapter 7 bankruptcy goes by many names: discharge bankruptcy, liquidation bankruptcy and straight bankruptcy. This form of bankruptcy works best for people with low incomes and high levels of unsecured debt like credit cards, payday loans and utility bills. Filing for Chapter 7 puts a stop to creditor harassment – no more phone calls, no more threatening letters. With the exception of student loans, child support and certain government-related debt, Chapter 7 erases most unsecured debt, you do not have to pay your creditors, and your creditors are forbidden by law from attempting to collect money from you.
Do You Qualify For Chapter 7 Bankruptcy?
The key to qualifying for Chapter 7 bankruptcy is passing a “means” test. The means test is designed to create a snapshot of your income and financial situation and compare it to the median income of households of the same size in your state. If your household income is at or below the median income, you qualify for Chapter 7 bankruptcy. If your household income is above the median income, it usually means you will have to file for Chapter 13 bankruptcy instead.
Discharging Debt Through Chapter 7
The Chapter 7 bankruptcy process involves meeting with a court-appointed trustee to review a list of your debts and assets. Any asset that is determined to be exempt, typically things such as a home or car, remains in your possession. Nonexempt assets are sold to pay down your debt to the degree possible. Debt is also divided into two categories: dischargeable and nondischargeable debt. Dischargeable debt includes things like credit card debt, personal loans and medical bills.
Common types of nondischargeable debt include:
- Child support
- Back taxes
- Student loans
- Tollway debt
- Criminal penalties
At the end of the process, all of your nonexempt debt is discharged, and you are no longer responsible for paying it back.