What does Chapter 7 mean?
Chapter 7 is the most common kind of bankruptcy that most individuals file. It is often the easiest and cost-effective way for people to achieve their fresh start. Chapter 7 takes approximately 4-5 months and allows individuals to wipe out their unsecured debts such as credit cards, medical bills, personal loans and automobile repossessions.
Is Chapter 7 right for me?
When figuring out whether a Chapter 7 is the best way to go for you, we look at your income, debt and what you own.
Income: In order to qualify for a Chapter 7, one must pass the Means Test. The Means Test determines whether a your income is too high (based on certain standards) by comparing your household income to the median income for a family in California with the same household size. If the income is over the median, it’s possible that you will still qualify. It’s important to talk to us about your budget in detail as certain monthly expenses may help you pass the means test and qualify you to file a Chapter 7.
Assets: The next consideration when filing a Chapter 7 are your assets (items you own.) If you have more assets than we can protect under the law, then this type of bankruptcy may not be the best option for you. Although filing a Chapter 7 bankruptcy is based on Federal law, it is state law that determines what kind of assets and how much equity in assets can be protected in bankruptcy. California offers generous exemptions that allow the great majority of debtors to protect all of their assets. Therefore, it is typically not a problem for debtors to keep their homes, vehicles, household goods and electronics, retirement plans, and other typical assets. In the unlikely event that certain assets cannot be protected, we can often put together a plan that allows you to legally shift assets into exempt sources before you file for bankruptcy. But this type of exemption planning requires a skilled attorney who has extensive bankruptcy experience.
Type of Debt: Lastly, the type of debt one has is important in determining whether Chapter 7 is the right option. While most unsecured debts (credit cards, medical bills, repossessions, judgments, personal loans, payday loans, etc.) are dischargeable, certain types of debts cannot be wiped out in Chapter 7. Examples of debts that cannot be discharged in this type of bankruptcy are student loans, recent tax debt, and domestic support obligations (like child support and alimony.) If the majority of one’s debt is non-dischargeable, Chapter 7 may not make sense; however, Chapter13 may be a great option. Also, certain debts such as car loans and mortgages are considered secured debts because the creditor can recover the collateral if the debt is not paid. So, if a debtor would like to keep his vehicle or house, he must continue to make those payments. But, bankruptcy does allow a debtor to surrender the collateral and wipe out any personal liability that would otherwise result.
It’s very important to have a proper consultation with an attorney regarding your options. Williams Law Group can guide you in the right direction.