What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a type of bankruptcy protection for individuals and involves the turnover and sale of a person’s non-exempt assets in exchange for the discharge of most debts. An independent Chapter 7 trustee is appointed for each case and will determine if any property is available and worth selling for the benefit of creditors. The majority of cases do not involve any loss of assets and proper planning will ensure that most debtors will keep their possessions.
Who Qualifies for Chapter 7 Bankruptcy?
Not everyone qualifies for a Chapter 7 discharge. In order to qualify for a discharge in Chapter 7, a person must not have the means or ability to repay creditors if they were to live on a reasonable budget. This is determined by what is referred to as the means test and is intended to determine whether the filing is an abuse of the bankruptcy code. The means test involves an analysis of a person’s historical income less certain fixed statutory deduction as well as a few discretionary deductions to determine if there is a net amount which can meaningfully repay creditors. If this calculation does not result in a net amount sufficient to provide a meaningful payment to creditors, a person is said to qualify for Chapter 7 relief.
What Are My Options if I Do Not Pass the Means Test?
Many attorneys will tell you that you will be forced to file Chapter 13 bankruptcy if you do not pass the means test. This is not technically true. If the presumption of abuse arises under the means test calculation, it does not mean that you have “failed” anything or that you are prohibited from filing a Chapter 7 case. The case can continue but will normally require you to provide a detailed explanation of your special circumstances and documentation to back it up. We have helped numerous debtors seek Chapter 7 relief after being told they did not qualify.
What are some of the major benefits of Chapter 7 bankruptcy?
- avoid judgment liens
- eliminate debt including medical and credit card debt
- keep or reinstate driving privileges
- stop wage garnishment
- end lawsuits
- retain all your future earnings free of creditor claims
Who is a Good Candidate for Chapter 7:
You may be a good candidate for Chapter 7 bankruptcy if you have had a recent drop in income, have large credit card bills or medical bills, if you recently received a wage garnishment, are involved in continued litigation that you are unable to pay for, have few or no non-exemption assets, or have little funds available to repay creditors.
How We Can Help
We can assist you in protecting your assets to avoid them being lost to a Chapter 7 trustee. It is important to consult with counsel who is knowledgeable and experienced with both federal and Arizona bankruptcy exemptions. Through proper exemption planning, most of our clients do not lose any assets to creditors. We can also administer the means test to determine your eligibility for Chapter 7 bankruptcy. If you do not initially qualify, we will offer suggestions for how you might change your situation in order to qualify for Chapter 7 relief. We have more than a decade of experience and are experienced in the most challenging bankruptcy cases. Call us today for a free consultation.