Chapter 7 bankruptcy is the most simple and the quickest form of bankruptcy for individuals, couples and businesses. Also known as liquidation of debt, a Chapter 7 bankruptcy will generally eliminate your unsecured debt. Unsecured debt is a debt not tied (or secured) to any particular item. Credit cards, collection accounts, medical bills, civil judgments, utility accounts, business expenses and various personal loans are some examples of unsecured debts you may have.
Secured debt, debt tied to a particular item such as a car loan, can also generally be eliminated in a Chapter 7 bankruptcy by surrendering the item to the lender in the appropriate manner. Most people, however, want to hold onto their cars and/or other items securing a debt obligation. This can be done by reaffirming the debt. Reaffirmation of a debt involves signing an agreement with your lender stating you understand you have the right to get rid of the debt under the Chapter 7 bankruptcy but you are freely choosing to retain the item as well as the debt and will continue to make the required payments.
Some debts cannot be eliminated or discharged in a Chapter 7 bankruptcy. Generally taxes, child support, student loans and spousal support cannot be eliminated in a Chapter 7 bankruptcy. However the filing of a Chapter 7 bankruptcy will most likely make the payment of these obligations much easier for you.
Since 2005 individuals and couples, but not businesses, are required to pass a “means test” in order to file for Chapter 7 bankruptcy. The means test is a two part test. The first part involves your annual income. If your annual income is at or below the average (or mean) income for your county in your state, then you have passed the means test, there is no need to go to the second part of the test and you are eligible to file a Chapter 7 bankruptcy. If your annual income is above the average income for your county and state, then the second part of the test applies.
The second part of the means test is to apply your normal and ordinary living expenses against your income to determine whether or not there is income “left over” from your expenses to pay towards the debts you would discharge under a Chapter 7 bankruptcy. Most individuals pass the means test once their expenses are applied against their income.
Individuals and couples, but not businesses, also need to take a credit counseling course before they can file for bankruptcy under Chapter 7. The Bankruptcy Court maintains a list of approved courses. The course is available on-line and can be done in the privacy and comfort of your own home. There is a charge for taking the course, the price being set by the vendor. Prices vary widely so you should shop carefully from the list of approved vendors when deciding which course to take.
The requirements to get started on obtaining a Chapter 7 bankruptcy may sound difficult but they are not. Beacon Law Office is ready to work with you in evaluating your financial issues and the best resolution of those financial issues for you and your family. Should you decide liquidating and getting rid of your debts is best for you, please give Beacon Law Offices a call at 207.710.0250 for professional attention on an individual basis.