How Chapter 7 Bankruptcy Works:
Preparing your case: I will review your income & expenses, assets, and debts, and develop a clear plan of action.
- Your Income & Expenses: Unless your debts are business-related, in order to file for Chapter 7 relief, you will need to qualify under the median income test. The first step is to determine if your 6-month average household income is below the median income for your household size. If it is, no further means testing is required. If your household income is above the median, you still may qualify after adjusting for certain expenses. The basic principle is to determine if you have enough disposable income to repay a meaningful amount to your creditors. If you CAN repay a meaningful amount to your creditors, you may end up filing Chapter 13 bankruptcy instead.
- Your Assets: You may have heard that Chapter 7 is a “liquidation” bankruptcy where you give up all of your assets. However, most people that file Chapter 7 will be able to keep everything that they own. This is because you are entitled to keep exempt property. Generally, if you don’t have much equity in your home or car, and don’t have many luxury items, most of your assets can be exempted. You can find more detailed information on all the categories and dollar amounts of your exemptions here.
- Your Debts: I will review your debts to see how much you owe, and whether your debts are secured or unsecured. Secured debt is a debt for which you pledged collateral to guarantee a loan. This is typically a vehicle or home loan. Typical unsecured debts include credit card debt, medical bills, income taxes, unpaid utilities, and past due rent.