Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is a kind of bankruptcy that allows individuals or couples to discharge their debts. You petition the court and say that you are so hopelessly in debt that there is no way that you will ever be able to repay. The court either accepts your petition or they deny it based on a number of factors. For most individuals, Chapter 7 bankruptcy is the preferred kind of bankruptcy. It allows you to discharge the majority of your debts and start from scratch. Here, we’ll go over the finer points of Chapter 7 bankruptcy including what debts it discharges, how it works, and how you qualify.
At The Sweeney Law Firm P.C., our Memphis Chapter 7 Bankruptcy Lawyers help those who are hopelessly in debt get a fresh start. Call us today to discuss your individual situation and the best court of action to take.
Chapter 7 Bankruptcy Eligibility Requirements
Anyone person or business can file for a Chapter 7 bankruptcy so long as they meet specific eligibility requirements. The first is that they have no filed any bankruptcy within the past seven years.
Generally speaking, any individual who makes less than the mean income in their state can file for Chapter 7. The median household income in Tennessee is $48,547. For those filing jointly, the median family income is $60,659. Both of those numbers were accurate as of 2016. Other factors might include your family size. This will be considered when comparing your annual income against the state median.
If your income exceeds the state median, you will be forced to take the means test.
The Means Test for Chapter 7 Bankruptcy
The means test considers your monthly income against your expenses. The more disposable income you have or the greater the difference between your expenses and your income, the less likely it will be that you pass the means test. In certain instances, a judge can deny a petition for Chapter 7 even if you pass the means test.
If a trustee determines that you have unnecessary expenses or the difference between your income and expenses allows you to pay back at least some of your debt, they will recommend that you file for Chapter 13 instead of Chapter 7 bankruptcy.
If you petition for Chapter 7 is denied there is no appeal.
How Chapter 7 Bankruptcy Works
There are certain pros to Chapter 7 but there are cons as well. Chapter 7 will clear the debts from your record, but the bankruptcy trustee takes over control of your finances. They will look at any recent transactions and they will attempt to liquidate any valuable assets you have in order to pay off your creditors.
Some assets can be protected, however. Your home, your vehicle, and any tools that you use in carrying out the duties of your employment can be protected from liquidation. In addition, any retirement accounts you have can be protected. Lastly, there is a “wildcard” exemption for personal property, including cash for $10,000. Understand, however, that assets may on be protected in part based on how large your family is.
Generally speaking, the trustee does not find much property worth liquidating and the debts are merely discharged without recompense. However, the trustee also gets a cut of any property they can find to discharge, so they are highly motivated to the task.
What Debts Can Chapter 7 Bankruptcy Discharge?
Chapter 7 can discharge any debt that was accrued prior to the petition date. You are still responsible for those that post-date the petition. Common types of debts that can be discharged by Chapter 7 include:
- Unsecured credit card debt,
- Collection agency accounts,
- Medical bills,
- Personal loans,
- Past due amounts on utility bills,
- Business debts,
- Money owed under lease agreements,
- Past tax penalties or unpaid taxes.
What Debts Can Chapter 7 Bankruptcy Not Discharge?
There are certain types of debt that you are still on the hook for paying regardless of whether or not your petition for Chapter 7 is granted. Those include:
- Alimony or child support payments,
- Debt to pay off a nondischargeable tax debt,
- Court fees,
- Homeowners Association fees,
- Fines or restitution owed for breaking the law,
- Certain kinds of tax debt,
- DUI related restitution to an injured party.
Some of these types of debts can be managed in Chapter 13 but not Chapter 7.
In addition, student loan and income tax debts cannot be discharged unless you prove to the court that there is a legitimate hardship and you should be exempted.