Chapter 7 Bankruptcy

The Chapter 7 Bankruptcy gives debtor a favorable circumstance to emerge out of a critical financial position and start afresh. This method erases the debts by allowing the court to convert the assets of the debtor into money (liquidate) and appropriately allocate the money to the creditors. The court however allows the exempt property to be preserved by the debtor. Chapter 7 Bankruptcy is also called by the names “straight bankruptcy” or “liquidation bankruptcy” justifying the above reason.

 

CRITERIA TO FILE CHAPTER 7 BANKRUPTCY:

 

This can be the most effective among the four types of Bankruptcy law (others are chapter 11, chapter 12, chapter 13) in dealing with overwhelming debts, but this law cannot be applicable to all the debtors. There is a clear framework in the law which decides who will be able to implement Chapter 7 Bankruptcy and those who will not be able to, in this case they have to opt for the chapter 13 bankruptcy or the other. Three important factors which influence the decision are given

  

·         IS YOUR INCOME LOW ENOUGH?

         The current monthly income (the average of last six monthly incomes) should be lower than that of the median income to avail the benefits of Chapter 7 Bankruptcy law else it’s required to pass the means test.

 

·         MEANS TEST

       The monthly income after subtracting allowed expenses and debt payments gives disposable income. Higher the disposable, most unlikely the chance to use Chapter-7 Bankruptcy! This restricts the people who are having formidably low income to qualify.

 

·         There should be no history regarding discharge of debts in chapter 7 for a period of last 8 years

 

This is the most popular method with debtors, accounting for 65% of total cases.