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Chapter 7 Bankruptcy

Is Chapter 7 the Answer?

Most people who are overwhelmed by debt make the same mistake: they struggle with debt for years before seeking out a long-term solution. There are many reasons for the delay, including overly optimistic thinking, uncertainty about how to find the best solution, and anxiety about looking head-on at financial problems.

Unfortunately, the delay can be expensive—and not just in dollars. While you’re juggling bills and making minimum payments, you’re probably spending a lot of money on interest and fees. Your debt may not be decreasing much, even though you’re making payments every month. At the same time, financial stress may be taking a toll on other areas of your life.

Financial Stress Hurts

Debt stress can affect every area of your life, including your health, your family relationships, and your job performance. Money worries have been linked to anxiety, depression, sleep problems, and migraines. Financial stress can also contribute to more serious medical conditions such as heart disease and diabetes.

You owe it to yourself and your family to break free.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is a debt solution created by federal law. The purpose of Chapter 7 is to let people shed unmanageable debt and get a fresh start. People who qualify for Chapter 7 bankruptcy can usually entirely eliminate unsecured debts such as:
Credit card debt
Medical bills
Payday loan debt and other unsecured personal loans
Old utility bills
This type of debt can typically be discharged in Chapter 7 bankruptcy even if the debt has already been turned over to a collection agency, a lawsuit has been filed, or there is a garnishment order in effect.

How Does Chapter 7 Work?

A Chapter 7 bankruptcy case starts with the filing of a petition and schedules, along with a certificate showing that you’ve completed a pre-filing credit counseling session. These schedules give the bankruptcy court information about your debts, income, and assets. In most cases, the bankruptcy court enters an automatic stay order as soon as the petition is filed.

The stay order tells creditors and debt collectors to stop trying to collect on debts listed in the bankruptcy filing. That means no collection letters, no harassing phone calls, no lawsuits, and no wage garnishments.

The stay typically remains in effect throughout the Chapter 7 bankruptcy case, so the bankruptcy petitioner is protected by the stay right up until the discharge order is entered.

Not all debt is dischargeable in a Chapter 7 case, but most unsecured debt is. The discharge order eliminates the legal obligation to pay discharged debt. A creditor, debt collector, or debt buyer who tries to collect debt that has been discharged in bankruptcy is violating a court order and may face sanctions.

Trying to collect discharged debt or inaccurately reporting the debt to credit reporting agencies may also violate consumer protection statutes such as the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA).

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Who Can File Chapter 7 Bankruptcy?

The main requirement for filing Chapter 7 bankruptcy is to pass the “means test.” The means test is a quick financial analysis to make sure the person filing bankruptcy really needs the relief. Most people who want to file for Chapter 7 bankruptcy are financially eligible.

The Chapter 7 Means Test

The first step is to compare your income with the median income for a household of the same size in your state. If you’re below the median, there’s no need to go any further. If your income is above the median, the next step is to figure out how much money you have left over after covering certain expenses. This step is a bit more complicated, because the amounts you can deduct for the allowable expenses won’t necessarily be the amount you’re actually paying.

The purpose of this calculation is to figure out how much money you’ll have left over to put toward your debts over the next five years. If that number is below a certain amount—currently $9,075--you pass. If the number is above a certain amount—currently $15,150—a presumption of abuse arises. That means the court will assume that you don’t really need to file bankruptcy. But, if there are special circumstances, you may still qualify.

Finally, if the amount falls between those two numbers, you go on to the final step and calculate what percentage of your unsecured, nonpriority debts you could pay over five years. If the answer is less than 25%, there’s no presumption of abuse.

There are a few other restrictions if you have filed for bankruptcy before, including an eight-year waiting period between Chapter 7 cases if you were previously granted a discharge. If you’ve filed before, be sure to tell your bankruptcy attorney at your initial consultation.

Ready for a Real Debt Solution?

Contact Resolve Law Group right now to schedule your free consultation with an experienced bankruptcy attorney. Most Chapter 7 cases are resolved in less than six months, leaving the bankruptcy filer free to build a brighter, more stable financial future.

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FAQ's

Do I Need a Bankruptcy Attorney?
There’s more to bankruptcy than filling out forms. Though there’s no legal requirement that you hire a bankruptcy attorney, cases filed without a lawyer are much more likely to be dismissed. That means wasted time and money, no financial relief, and possible obstacles to trying again.

An experienced bankruptcy attorney can guide you through the process from beginning to end, helping you choose the best type of bankruptcy for you, ensuring that your property is protected, preparing you for your 341 hearing and helping avoid mistakes that might put your discharge at risk.

How Much Does Bankruptcy Cost?
In 2022, the court filing fees and associated administrative costs to file a Chapter 7 bankruptcy case total $338. In some cases, there may be additional costs. For example, there is a small additional filing fee if you file an amended petition.

For Chapter 13 bankruptcy, that figure is currently $313. The Chapter 13 trustee also receives a small percentage of your monthly plan payments.

You’ll also be required to complete credit counseling before filing and a financial management course before discharge. You can usually get both courses for a package price of about $50.

How Do I Know if I Qualify for Bankruptcy?
Eligibility for bankruptcy depends on a variety of factors, including whether you are considering Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 eligibility depends in part on a means test, which is designed to make sure you really can’t afford to pay your debts. The first step is to compare your household income to your state’s median income for the same household size. If you’re below the median, you don’t have to go any further. If you’re above the median, the test gets a little more complicated.

For Chapter 13, there’s no means test. But, you must be able to demonstrate regular income sufficient to keep up plan payments while covering your ongoing expenses. And, the amount of debt that can be included in a Chapter 13 case is capped at $419,275 in unsecured debt and $1,257,850 in secure debt. (These caps will be adjusted as of April 1, 2022)

There are other variables as well, including residency, any past bankruptcy filings, and more. The best source of information about whether you qualify for bankruptcy is an experienced bankruptcy attorney.

Need Legal Help?

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To learn more about how we may be able to help, contact us right now. Fill out the contact form on the right, or call or email us today.

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