Chapter 7 bankruptcy is available to anyone who has a business, owns property, or resides in the United States; however, some individuals may be ineligible for bankruptcy protection, or will be ineligible for chapter 7 protection, and must file for chapter 13 bankruptcy instead.
When a debtor files for chapter 7 bankruptcy, all of their non-exempt property will be liquidated in order to pay their creditors. Despite the fact that a chapter 7 bankruptcy will remain on your credit report for ten years, if you are in a position to file chapter 7, your credit is already severely damaged.
A chapter 7 bankruptcy offers a fresh start and the discharge of all of your dischargeable unsecured debts (some debts are not dischargeable). Some of the debts that will endure the bankruptcy process. Included in a chapter 7 bankruptcy are mortgage and car payments, child/spousal support payments, judgments against you (such as court-awarded damages) and back taxes less than three years old.
Student loans cannot be discharged unless the borrower can demonstrate that repayment would be unreasonably difficult. The chapter 7 procedure will take four to six months and cost $295 (plus attorney expenses).
During and/or prior to the bankruptcy proceeding, you are required to complete a financial education course and two credit counseling courses. Chapter 7 filers are permitted to retain certain property and assets.
Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 to prevent individuals from declaring bankruptcy when they could repay their debts. The Act established the means test, which determines whether a person is a legitimate candidate for bankruptcy by comparing the debtor's average income to the state's average income; the means test is applied when the debtor's average income exceeds the state's average income. The means test is administered by subtracting the debtors' assumed expenses from their average income. This equation will determine if the debtor is eligible for chapter 7 bankruptcy (if not, you will have to register for chapter 13).
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