Chapter 7 Bankruptcy Rules
When bills start to pile up and people are unable to pay them, they sometimes turn to bankruptcy to regain control of their finances. Chapter 7 bankruptcy is one type of consumer bankruptcy that some people might opt to seek protection under. There are some very specific eligibility requirements that must be met in order for a person to qualify for Chapter 7 bankruptcy.
Previous Bankruptcy Filing
Certain previous bankruptcy filings can prohibit a person from being able to file for Chapter 7 bankruptcy. A person who filed Chapter 7 bankruptcy within the past eight years can't file for Chapter 7 bankruptcy again. A person who filed Chapter 13 bankruptcy within the past 6 years can't file for Chapter 7 bankruptcy.
Because Chapter 7 bankruptcy is a liquidation bankruptcy that expunges all eligible debts, the person filing for Chapter 7 must meet income requirements. The amount of income a filer is allowed to have is determined by the median income of the state in which the person is filing.
There are some instances in which a filer who has an income over the allowable amount might still qualify for Chapter 7. In order to determine if the person does meet these requirements, the person must complete a means test. This test is meant to stop people from claiming protections under Chapter 7 when they have the ability to repay creditors. It takes certain monthly expenses and compares those expenses to the income of the filer. If the income exceeds the expenses, the filer might be eligible for Chapter 7 bankruptcy.
A person who is filing for Chapter 7 bankruptcy has to go through credit counseling with an approved provider. They also have to pay applicable filing fees. People who earn less than 150 percent of the poverty rate might qualify for a waived fee or for the ability to pay the fee in installments.
Exempt vs. Non-Exempt Property
A person who goes through Chapter 7 bankruptcy has to turn certain assets over to a bankruptcy trustee. Those items are sold to satisfy some or all of the debts the person owes. The property that must be turned over are considered non-exempt assets. The assets a person is allowed to keep are considered exempt assets.
Family heirlooms, second homes, second vehicles, bank accounts, investments, expensive musical instruments, cash, bonds, and some collectible items are examples of non-exempt assets. A vehicle that doesn't exceed a certain value, pensions, public benefits, household appliances, clothing, some jewelry, some equity in a home, and damages awarded for personal injury settlements are examples of items that are considered exempt in Chapter 7 bankruptcy.
Filing for Chapter 7 bankruptcy can be a complex undertaking. Learning the laws pertaining to this type of bankruptcy protection takes time and experience. Individuals who need to seek protection using a Chapter 7 bankruptcy filing should contact a bankruptcy lawyer to help determine if they meet the requirements and how the bankruptcy might affect their assets and other factors.
Additional Chapter 7 Bankruptcy Articles
- What are the Basics of a Chapter 7 Bankruptcy?
- Will Filing for Chapter 7 Bankruptcy Get Rid of All My Debts?
- Chapter 7 Bankruptcy Exemptions
- What is a Chapter 7 bankruptcy?