Chapter 7 Bankruptcy: Could it Help Me?

In today’s economy, many of us are finding we’re asking questions we never thought we’d have to ask ourselves, like:

• How am I going to pay my bills?

• Should I file bankruptcy?

• I can barely make it month-to-month, what am I going to do?

If you’re struggling to tame your debt and interest rates and late fees are bogging you down, it may be time to consider filing Chapter 7 bankruptcy.

Chapter 7 bankruptcy has not only helped some people eliminate their debt, but it’s also helped some folks silence their creditors, thanks to the automatic stay.

Chapter 7 and the Automatic Stay

The automatic stay is a court order that prohibits creditors from pursuing any further collection efforts.

That means no more harassing phone calls and no more collection notices flooding your mailbox—your debt collectors are silenced!

In a successful Chapter 7 case, the automatic stay goes into effect immediately after the bankruptcy papers are filed and its powers usually last until debts are discharged.

Many find that this kind of stress relief is priceless. But you can put a price on the other major benefit to Chapter 7 bankruptcy—the debt discharge.

The Chapter 7 Debt Discharge

Chapter 7 bankruptcy was designed to eliminate filers’ unsecured debts through the debt discharge.

Credit card debt, medical bills, payday loans, parking tickets and utility bills are just some of the types of debt that are considered “unsecured” debts.

Once those unsecured debts are discharged, the filer is no longer responsible for them—ever.

But the discharge sometimes comes with a price.

Under Chapter 7, the bankruptcy trustee has the right to liquidate (sell) a debtor’s property in order to repay creditors.

Luckily, some property may be protected from liquidation through property exemptions.

Every state has its own set of exemptions, so it’s a good idea to talk to a local bankruptcy lawyer about whether your property could be protected by your state bankruptcy laws.

But, don’t panic—in many cases, those who qualify to file Chapter 7 do not have significant non-exempt property, so no property is liquidated.

Chapter 7 Eligibility: Can I File Chapter 7?

Chapter 7 is reserved for people who have no other option but to discharge their debt.

Since the new bankruptcy law passed in 2005, debtors must qualify to file Chapter 7 by submitting to the Chapter 7 means test.

The means test involves certain calculations to determine whether a person can file Chapter 7 or whether that person has enough income to repay their debts through a Chapter 13 bankruptcy repayment plan.

The means test examines a person’s income and compares it to the median income level of a family their size in their state.

The test also examines a person’s “disposable income” (determined by IRS and bankruptcy court metrics) to see whether they qualify for Chapter 7.

If you’re seriously in debt and considering bankruptcy, talk to a bankruptcy lawyer today about your debt-relief options and whether you may be eligible to file Chapter 7.

Note: Chapter 7 bankruptcy is not for everyone. There are other debt-relief options out there, so make sure you do your research and find the right option for you.