1. What is a Chapter 7 bankruptcy?
A Chapter 7 bankruptcy filing does not involve a repayment plan like a Chapter 13 filing. Instead, a trustee sells the debtor’s nonexempt assets and uses the proceeds to pay creditors. While the Bankruptcy Code will allow the debtor to keep some types of exempt property, a trustee will liquidate the debtor’s remaining assets to pay debts.
2. Am I eligible to file for Chapter 7 bankruptcy?
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, you are eligible to file for bankruptcy under Chapter 7 if you earn less than the median income in your state. You can find the median income for California here. If you earn more than the median income, then you will only be eligible to file for bankruptcy if you pass a test that will determine if you are eligible. This test is called a “means test”, and it is discussed below.
3. What is the “means test” and how does it work?
A bankruptcy attorney will be your best resource to help determine if you are eligible to file for filing for Chapter 7 under the means test. The court applies a complex formula – which subtracts the costs of food, rent, mortgage, and other costs calculated under IRS guidelines – to determine whether your monthly income is less than $100. Generally, if your income is less than $100 per month, you can file for Chapter 7. If your income is more than $100 per month, but less than $166 per month, the court will calculate what percentage of your unsecured debt they can pay off using income over a set time period.
4. Will I lose some of my assets if I file for Chapter 7?
You will probably have to sell some of your nonexempt assets to cover your debt.
5. How does a Chapter 7 bankruptcy case begin?
You can initiate a Chapter 7 bankruptcy claim by filing a petition with the U.S. Bankruptcy Court and asking it to relieve you from your debt. As of the date you file the petition, your assets will be under the protection of the court. Most collection efforts against you must stop. If someone has co-signed a loan for you, however, the co-signor will still be liable to creditors.
6. What should I do if a creditor attempts to collect a debt that has already been discharged by the court?
When a Chapter 7 debt is discharged, the court enters an order that prohibits creditors from attempting to collect the debt. If a creditor is not aware of or violates this order in any way, they may be held in contempt, and may even be liable to the debtor for certain damages.
7. Do I have to attend credit counseling?
Yes. According to the Bankruptcy Abuse Prevention and Consumer Protection Act a debtor will not be eligible to file under either chapter 7 or chapter 13 unless the debtor attended an “individual or group briefing” from a credit counseling service within 180 days prior to the filing. The law also makes all debtors complete an instructional course on personal financial management. Although this requirement may be removed in the future, if a debtor does not complete the course, he/she may be denied discharge of his/her debts.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code