In your journey toward financial clarity, there will come a time when you will need to take an honest look at your debt. If you’re lucky, you might be in a position to pay off your debt and improve your financial picture. However, if your debts are far greater than your income, or if you have had a series of misfortunes that have left you financially bereft, you might have no option but to file Chapter 7 Bankruptcy.
What is Chapter 7 Bankruptcy?
Before we talk about what Chapter 7 is, we should discuss what it is not:
Chapter 7 bankruptcy is not a way for people to shirk their responsibilities or defraud their creditors. It is a way for honest people, who have fallen on hard times financially, to eliminate their debts and start over with a clean slate.
Because it is designed to forgive honest debt, there are several criteria you must meet to be eligible to file.
Chapter 7 Bankruptcy Criteria
Because Chapter 7 is reserved for those who truly cannot pay their bills, there are several criteria that you must meet before you can file. The biggest criterion is the chapter 7 means test.
The Means Test
The Chapter 7 means test determines if your income is low enough for you to qualify. The test looks at several criteria including:
- Is your income higher than the median for a household your size and in your state; and,
- Do you have enough income, after your monthly expenses, to repay some of your debts?
If you can answer no to both questions, you will most likely be able to file Chapter 7. However, even if you can’t you could still qualify. There are chapter 7 bankruptcy attorneys across the country who can give you more information on the means test.
Although the means test is important, there are other factors that can also determine your eligibility to file.
If you have filed for bankruptcy in the past, your ability to file will depend on several factors.
· If you had successfully filed Chapter 7, you cannot file again for at least eight years;
· If you had successfully filed Chapter 13, you cannot file Chapter 7 for at least six years;
· If you had a previous bankruptcy dismissed because you violated a court order, the court ruled your filing was fraudulent, or because you requested a dismissal, you cannot file again for at least 180 days.
Even if you are able to file, a prior bankruptcy could have some bearing on whether or not you can successfully file again. A good bankruptcy attorney can give you the information you need.
Recent Financial Transactions
Earlier we mentioned fraudulent filing. This occurs when the individual wracks up debt with the sole intent of discharging it in chapter 7. While it is rare, unfortunately it does happen; and that is why certain financial transactions could be interpreted by the courts as an attempt at a fraudulent filing.
- Opening a new credit account shortly before filing
- Submitting a lot of credit applications shortly before filing
- Increasing your volume of credit charges, especially for non-essential and luxury items
- Transferring assets to other people prior to filing
If you have performed any of these activities, you should consult an attorney to prevent the courts from dismissing your case.
The Type of Debt
There are certain debts that cannot be discharged through a Chapter 7 – these include:
- Student loan debts
- Court-ordered child support and alimony payments
- State, local, and federal taxes
If your debts are primarily composed of these elements, you may not be able to file Chapter 7.
Additionally, chapter 7 requires you to relinquish some or all of your non-exempt assets including:
- Credit cards
- Financed vehicles
- Financed or mortgaged real estate
If you need to keep any of these assets, you may not be able to file Chapter 7.
If you are unable to file Chapter 7, there are other forms of bankruptcy that could be available to you. Your best bet is to contact an attorney for information on the types of bankruptcy available, and to determine which type is best for you.