What is a Chapter 7 Bankruptcy?
The two most common bankruptcies for individuals are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 is a liquidation bankruptcy, while Chapter 13 is generally known as a repayment plan. We will discuss Chapter 13 bankruptcy at a later time. This post, however, will briefly explain how a Chapter 7 bankruptcy works.
In a Chapter 7 bankruptcy, a person can usually eliminate most of their unsecured debts. Unsecured debts include credit cards, medical bills, and personal loans that are not attached to some sort of tangible real or personal property. In other words, if there is a lien on a piece of property, then the debt is NOT unsecured — instead, it is known as secured property.
It is important to know that child support, alimony, taxes, and student loans generally cannot be wiped out in any type of bankruptcy.
Usually, a person who files Chapter 7 bankruptcy can keep their house and/or car, as long as they are not behind on the payments.
The most important part of a Chapter 7 bankruptcy is the “Means Test.” In 2005, when the bankruptcy laws changed, a limit was placed on the income that a person filing Chapter 7 bankruptcy can have. The income limit is determined by where the person lives and how many people are in the household. You will need to have your pay stubs for the last 6 months and will need to come into our office so that we can determine whether you are eligible for Chapter 7 bankruptcy.
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