Chapter 7 Bankruptcy
“Bankruptcy” – the term most people dread applying to themselves. This in itself prevents people in financial trouble from pursuing it as an option. Most people genuinely want to repay their debts and view bankruptcy as a cop out. In addition there is the negative social stigma of being called a bankrupt. All these add up to the hesitancy in most people to consider bankruptcy as a way out of their financial malaise. But in reality, bankruptcy is not something to be shunned if you are at the brink of financial ruin.
There are 2 chapters in the Bankruptcy Code for a bankruptcy case. The first is Chapter 7. Chapter 7 will allow you to discharge most of your unsecured debt i.e. debts without collaterals. Examples of unsecured debts are credit card debts, hospital bills, payday loans, study loans etc. Usually, it is the norm to file for a Chapter 7 bankruptcy after exhausting all other repayment options other than bankruptcy. However, there is a very precise legal criteria that governs who can be declared a bankrupt under Chapter 7.
Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), in order to be qualified to file for bankruptcy under Chapter 7, you must meet the criteria of the means test. Essentially, this requires you to be earning below your state’s median income for a family of your size. Each state’s list of median incomes is unique and is maintained at the US Census Bureau. Basically, if your annual income is below the threshold according to the size of your family, then you qualify to file for bankruptcy under Chapter 7. In addition, your expenses for basic needs such as mortgage, utilities and transport etc must be within the standards according to the IRS. When those two conditions are met, then you need to show that once you have paid for your basic needs, you do not have anything left to pay off your debts, even by installments.
If you are successful in your application for Chapter 7 bankruptcy, then your slate is wiped clean and you do not have to pay your creditors. In turn your creditors are also prevented from hounding or harassing you for payment, garnishing your wages or doing anything else of such nature. All this can usually be accomplished within 6 months.
However, if your annual income exceeds your state’s median income for a family of your size or if you fail to show that after paying for your basic needs, you do not have the means to pay for your debts, then you do not qualify to apply under Chapter 7.
In conclusion, a Chapter 7 application is a viable option if you qualify for it. In fact, it is not uncommon for successful applicants under Chapter 7 to still keep their house, car and other assets despite being declared a bankrupt.
If you feel you may qualify to apply for bankruptcy under Chapter 7, please fill out our evaluation form. Then contact us at our number (813) 200 4133 for a non-obligatory consultation.