Chapter 7 bankruptcy is a form of bankruptcy that allows individuals to discharge their debts and obtain a fresh start. However, not everyone is eligible for Chapter 7 bankruptcy. In this article, we will cover the qualifications for Chapter 7 bankruptcy, including assets and exemptions, as well as means testing.
Qualifications for Chapter 7 Bankruptcy:
To qualify for Chapter 7 bankruptcy, individuals must meet certain criteria. First, they must pass the means test, which we will discuss in more detail later in this article. Second, they must not have received a Chapter 7 discharge within the past eight years, or a Chapter 13 discharge within the past six years.
Assets and Exemptions:
When an individual files for Chapter 7 bankruptcy, their assets are subject to liquidation to pay off their creditors. However, certain assets are exempt from liquidation, meaning they can keep them even after filing for bankruptcy.
The exemption laws vary from state to state, but some common exemptions include:
- Homestead exemption: This exemption allows individuals to keep a certain amount of equity in their primary residence.
- Personal property exemption: This exemption allows individuals to keep a certain amount of personal property, such as clothing, household goods, and furnishings.
- Vehicle exemption: This exemption allows individuals to keep a certain amount of equity in their vehicle.
It is important to note that not all assets are exempt, and some individuals may need to surrender non-exempt assets to the bankruptcy trustee for liquidation.
Means Testing:
The means test is used to determine if an individual’s income is low enough to qualify for Chapter 7 bankruptcy. The means test compares an individual’s income to the median income in their state for a household of the same size. If an individual’s income is below the median income, they automatically qualify for Chapter 7 bankruptcy. If their income is above the median income, they must complete the second part of the means test.
The second part of the means test calculates an individual’s disposable income, which is the amount of money they have left over after deducting certain expenses. If an individual’s disposable income is below a certain threshold, they qualify for Chapter 7 bankruptcy. If their disposable income is above the threshold, they may not be eligible for Chapter 7 bankruptcy and may need to consider Chapter 13 bankruptcy instead.
Conclusion:
Chapter 7 bankruptcy can provide individuals with a fresh start and relief from overwhelming debt. However, not everyone is eligible for Chapter 7 bankruptcy, and there are specific qualifications that must be met. Understanding the qualifications, assets, and exemptions, as well as the means testing process, can help individuals determine if Chapter 7 bankruptcy is the right choice for them. It is recommended to consult with a bankruptcy attorney to determine the best course of action for your individual situation.
Please feel free to reach out for a free consultation by emailing info@tejeslaw.com, calling (407) 734-5166 or using this link to schedule an appointment yourself.
Sources:
- U.S. Courts. Chapter 7 – Bankruptcy Basics. (n.d.). Retrieved from https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics
- Internal Revenue Service. (2022, February 28). National Standards for Allowable Living Expenses. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/national-standards-for-allowable-living-expenses
- American Bar Association. (2022, February 28). Exemptions in Bankruptcy. Retrieved from https://www.americanbar.org/groups/business_law/publications/committee_newsletters/bankruptcy_insolvency/2018-19/fall/exemptions-in-bankruptcy/
- Legal Information Institute. (n.d.). 11 U.S. Code § 707 – Dismissal of a case or conversion to a case under chapter 11 or 13. Retrieved from https://www.law.cornell.edu/uscode/text/11/707
- U.S. Courts. (2022, February 28). Median Income Table. Retrieved from https://www.justice.gov/ust/means-testing/20220218-median-income-tables
- Means testing calculator from https://tryascend.com/bankruptcy/calculator
