Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common type of bankruptcy filed each
year by debtors, with Chapter 13 following close behind. Chapter 7
bankruptcy is for individual debtors only (you can file with a spouse), it
is not for businesses. Businesses typically file Chapter 11 bankruptcy. In
order to file chapter 7, the debtor must have little income left after
paying typical monthly expenses each month such as rent or mortgage,
utilities and groceries. Most consumers that file have a lot of unsecured
debts like credit cards or medical bills that are not tied to property.
When filing chapter 7 bankruptcy the court does look at your specific
expenses and compares them to averages in your area. While that means you
don’t have to be at poverty level, it does mean that you cannot be using
extra income for extravagant living while saying you can’t pay your bills.
For example, if the average for groceries in your area is $400 a month for
your family, the trustee will likely not accept your $2000 grocery bill
unless you have extenuating circumstances that make the amount necessary for
survival, such as a medical condition that requires special food. The new
Means Test, added by the new bankruptcy laws, is
what helps the Trustee determine if you have enough income for a Chapter 13.
Most unsecured debts are completely dischargeable, meaning they will be
wiped away once the bankruptcy petition is filed and approved/discharged.
There are some debts that are not dischargeable except under specific
circumstances, like student loans, taxes, child support and a few others
called “priority claims.”
If your trustee determines after looking at your income and monthly expenses
that you do in fact have extra income, they may push you into a Chapter 13
bankruptcy and create a repayment plan for your debts.
When filing a chapter 7 bankruptcy petition you will select bankruptcy
exemptions that will protect your property that you want to keep. Each state
can determine the property that can be protected and what amount you can
keep. Any amount of value that is over the exemption is subject to being
used to pay your debts.
Related Information
- The difference between Chapter 7 and Chapter
13 bankruptcy
- Is filing bankruptcy right for you?
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File Bankruptcy With a Petition Preparer