From the beginning of America\’s recent recession through the present day, there has been a lot of talk about debt and bankruptcy. Since it is perhaps the clearest way for debtors to get a clean slate and get on with their lives, there is a lot of Chapter 7 bankruptcy information that is helpful to know. Anyone in serious financial trouble, however, should definitely consider seeing a lawyer that specializes in bankruptcy law. That being said, what does Chapter 7 bankruptcy mean for debtors and who can apply for it?
Chapter 7 bankruptcy is meant to reimburse creditors as much as possible while clearing what the debtors in question owe. To that end, Chapter 7 entails liquidation of everything but non-exempt property that a debtor may own. What constitutes exemptions to liquidation is determined by either a federal set of standards and a state-determined set of standards. After the non-exempt property is liquidated, the remaining debts are dismissed.
There are only two initial requirements to file a Chapter 7 claim. The first is that the debtor, whether it is an individual or a business entity, meet with a credit counselor up to 180 days before the claim is filed. The debtors record must also be clear of malfeasance with the bankruptcy court system for 180 days or more, otherwise they may be disqualified. Not taken into consideration are the amounts owed by the debtor(s), nor their financial solvency. In other words, Chapter 7 does not require that someone be destitute to qualify for a clean debt slate.
However, there are checks to make sure that people aren\’t simply abusing the system to get out of paying their debts. The courts have what is called a means test to determine whether or not someone is filing a so-called abusive petition.
The first part of the means test checks to see whether a debtor\’s monthly income is above the median for their state of residence. The second part involves a concept called unsecured debt, which means the type of debt that isn\’t secured by the creditor with debtors\’ assets. Mostly, this applies to credit card debt. If your expenses exceeds 25% of their unsecured debt, then the court presumes that the case is abusive and will probably dismiss it or convert it to a Chapter 13 bankruptcy filing.
Filing a Chapter 13 bankruptcy has very different consequences. Under Chapter 13, the government helps set up a payment plan through which the debtor pays his creditor over the course of five years the maximum he or she is capable of, while still allowing for federally determined living expenses like rent, food, etc. The amount that cannot be paid after that period is erased.
Very little is exempted during the Chapter 7 process, so debtors who want to keep their house and motor vehicle, amongst other things, should probably not file for Chapter 7. Also, if the debtor owns a business and wishes to keep it going, they should probably seek alternative means of declaring bankruptcy. One alternative is settling with debtors outside of the court system and finding a payment plan through negotiation.
Armed with Chapter 7 Bankruptcy information, it\’s clear that your finances are going to be subject to intense scrutiny by the bankruptcy process. This is so that Chapter 7 can do exactly what it is meant to do: provide a means by which honest debtors can get their lives back on track.
Learn more details on how Chapter 7 Bankruptcy Information work and find out more information on How To File For Bankruptcy. Anyone in serious financial trouble should certainly consider consulting a lawyer that specializes in bankruptcy law.
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