Submitted by Jen Jones on Wed, 04/08/2009 - 7:47pm
Wondering about the basics of Chapter 7 bankruptcy? Here they are, in a nutshell:
Chapter 7 bankruptcy (sometimes referred to as "liquidation bankruptcy)" is designed to allow you to wipe out all or most of your unsecured debts. These are things like credit card debt and medical bills, which are not secured by some sort of collateral. Getting rid of these debts is the biggest benefit of filing bankruptcy. Imagine how much money you'd have in your pocket if you weren't throwing it away on monthly credit card payments?
Many people are under the impression that they must give up their property when they file for Chapter 7. This is not necessarily true. The property you get to keep is called "exempt" property. Bankruptcy exemptions are dollar amounts, and act to protect an individual's assets. Depending on the state you live in, these dollar amounts are fairly generous. For example, in North Carolina, the real property exemption for a married couple is up to $37,000.00 of any home equity. Of course, there are various exemptions for different kinds of assets, including household goods, automobiles, etc. So long as the "yard sale" value of your assets do not exceed the exemption, you get to keep your assets. But even if they do exceed exemption limitations, another form of bankruptcy might still be an option. Talk to a knowledgeable attorney who can guide you through these issues.
What are the qualifications for a Chapter 7? The first eligibility requirement is usually easy enough: you have to be a resident of the United States. You also have to meet certain financial requirements. Your income over the last six months must have been equal to or less than the "median family income" (the median income of a family of your size in your state). If you made too much money to meet this test, you can still qualify under "the means test." This is based upon the amount of your monthly "disposable" income (what's left after you've paid all your bills). As long as the disposable income doesn't exceed a certain amount, you probably qualify for a Chapter 7 bankruptcy.
While having filed for bankruptcy in the past won't necessarily prevent you from doing so again, there are some time period limitations. You can file again so long as the last time you filed was more than six months ago and you have not received a discharge under Chapter 7 in the last eight years (or in the last six years under Chapter 13).
So, that's it in a nutshell. The specifics will vary from case to case. If you're having trouble managing your unsecured debts and want to know if Chapter 7 is right for you, it's best to contact a bankruptcy attorney to discuss your specific situation.
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