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What Are the Req. for Filing Chapter 7 Bankruptcy

  • Updated: July 24, 2024
  • You must pass a means test and complete credit counseling before filing for Chapter 7 bankruptcy.
  • Ensure your assets meet exemption limits and provide accurate documentation to avoid delays.
  • Call The Credit Pros to review your credit report and get personalized advice to help improve your financial health during this process.

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Related content: How Do I File Chapter 7 Bankruptcy (By Myself or With a Lawyer)

If you plan to file for Chapter 7 bankruptcy, you need to meet specific requirements. First, you must pass a means test to see if your income qualifies. This test compares your income to the median income in your state. Next, you need to complete a credit counseling session from an approved agency within six months before filing.

Owning non-exempt assets might affect your eligibility; most of your assets should be protected under state or federal exemptions. You must also provide the bankruptcy court with detailed documentation, including your recent tax returns, a list of your debts, and proof of income. Missing or incorrect documentation could delay or even derail your bankruptcy filing.

Navigating these requirements can be overwhelming and stressful, but you don't have to go through it alone. Call The Credit Pros, and we'll guide you through the process. We'll review your entire 3-bureau credit report and offer tailored advice based on your unique situation. Let's tackle this together, ensuring you handle everything correctly and improve your financial health.

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    Eligibility Criteria And Income Limits For Chapter 7 Bankruptcy

    To determine eligibility for Chapter 7 bankruptcy, you need to pass the means test. This test compares your average monthly income over the past six months to your state's median income for your household size. If your income is below the median, you qualify. If it's above, you might still qualify by proving you have limited disposable income after allowed expenses.

    Key eligibility criteria include:

    • Income below your state's median or limited disposable income
    • No Chapter 7 discharge in the last eight years
    • No dismissed bankruptcy case in the last 180 days
    • Completion of credit counseling within the past 180 days

    Income limits vary by state and household size. For example, as of April 2024 in New York:

    • 1 person: $69,135
    • 2 people: $87,550
    • 3 people: $105,435
    • 4 people: $131,389
    • Add $9,000 for each additional person

    If your income exceeds these limits, you could still qualify by deducting certain expenses. An experienced bankruptcy attorney can help you navigate the complex means test calculations and explore strategies to potentially become eligible.

    Bottom line: Passing the means test is essential, and you should seek advice from a bankruptcy attorney to understand your eligibility and options fully.

    How Does The Chapter 7 Means Test Work

    The Chapter 7 means test determines if you qualify for bankruptcy debt discharge. Here's how it works:

    Step 1: Compare your average monthly income over the past six months to your state's median income for your household size. If your income is below the median, you pass automatically.

    Step 2: If your income exceeds the median, calculate your disposable income by subtracting allowable expenses from your income. These expenses include necessities like food, housing, healthcare, and transportation.

    If your disposable income is too high, you fail the means test and can't file for Chapter 7. Instead, you may qualify for Chapter 13 bankruptcy, which allows you to repay some debts over 3-5 years.

    The means test ensures that only those truly unable to pay creditors can file for Chapter 7. Even if you pass, the court still reviews your full financial situation to confirm eligibility.

    In a nutshell, if you want to discharge debts through Chapter 7 bankruptcy, you need to pass the means test by showing your income is low enough or your expenses are high enough to qualify.

    Which Debts Can Be Discharged In Chapter 7 Bankruptcy

    Chapter 7 bankruptcy can discharge many common debts, giving you a fresh financial start. You can typically eliminate:

    • Credit card balances
    • Medical bills
    • Personal loans
    • Utility bills
    • Rent arrears
    • Payday loans
    • Car loan deficiencies
    • Mortgage deficiencies

    However, you can't wipe out certain debts, such as:

    • Child support
    • Alimony
    • Most student loans
    • Recent tax debts
    • Court fees

    If you have secured debts like mortgages or car loans, you might need to surrender the collateral to discharge any remaining balance. The bankruptcy process usually takes about four months to complete.

    To qualify for Chapter 7, you must pass a means test proving you can't repay your debts. If you don't pass, you might have to consider Chapter 13 bankruptcy.

    We recommend consulting a bankruptcy attorney to evaluate your specific situation. They can help determine which debts you may be able to eliminate and guide you through the process.

    All in all, understanding which debts can be discharged in Chapter 7 bankruptcy helps you make informed decisions for a fresh financial start.

    Documents Required To File For Chapter 7 Bankruptcy

    To file for Chapter 7 bankruptcy, you need to gather several key documents:

    • Income records: Last 7 months of paystubs, profit/loss statements, unemployment or disability benefits info.

    • Bank statements: Past 7 months for all accounts, including online (PayPal, Venmo, etc.).

    • Tax returns: Federal and state for the last 2 years.

    • ID and Social Security proof: Driver's license/passport and SS card/W-2.

    • Debt documentation: Credit card/loan statements, medical bills, collection letters, legal notices.

    • Property info: Vehicle titles, life insurance policies, stock certificates, retirement account statements.

    • Credit counseling certificate: Required pre-filing course completion proof.

    You'll also need:

    • Vehicle registration and insurance.
    • Mortgage statements and property value evidence.
    • Recent pay stubs and W-2 forms.
    • Domestic support obligations documentation.
    • Business ownership records (if applicable).

    Use these to complete your 50+ page bankruptcy petition. Submit these documents to your trustee at least 7 days before the 341 meeting of creditors.

    At the end of the day, working with an experienced bankruptcy attorney can streamline the process and ensure you file all required paperwork correctly.

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    How Long Does The Chapter 7 Bankruptcy Process Take

    Chapter 7 bankruptcy usually takes 4-6 months from filing to discharge. You undergo several key steps during this period:

    1. Pre-filing:
    • Complete a credit counseling course.
    • Gather your financial documents.
    • Pass the means test.

    2. Filing the petition:
    • Submit your bankruptcy forms to the court.
    • An automatic stay halts collection efforts.

    3. Creditors' meeting (341 meeting):
    • This happens about 30-45 days after filing.
    • A trustee reviews your case and asks questions under oath.

    4. Post-filing:
    • Complete a financial management course.
    • Cooperate with trustee requests.

    5. Discharge:
    • The court grants discharge around 60-90 days after the creditors' meeting.
    • Eligible debts are erased.

    Certain factors like complex cases, delays in paperwork, creditor objections, and trustee investigations can extend the timeline. Most straightforward "no-asset" cases wrap up quickly. Lastly, staying organized, being responsive, and working closely with your attorney help speed up the process.

    What Property Can You Keep In Chapter 7 Bankruptcy

    In Chapter 7 bankruptcy, you can keep certain property through exemptions. Federal and state laws protect essential assets from liquidation. Key exempt items often include:

    • Your home (up to a specified equity limit)
    • Personal vehicle (typically up to $4,000 in value)
    • Clothing, furniture, and household goods
    • Tools needed for your job (up to a certain value)
    • Some or all of your retirement accounts
    • A portion of earned but unpaid wages

    Exemption limits vary by state. Some states allow you to choose between state and federal exemptions. Non-exempt assets may be sold to repay creditors. However, many Chapter 7 filers keep most or all possessions through careful use of exemptions.

    To protect your assets, consult a bankruptcy attorney who knows local laws. They can help maximize your exemptions so you can keep more property. Be aware that recent valuable purchases or property transfers may face scrutiny.

    Finally, if you have significant non-exempt assets, Chapter 13 bankruptcy might be a better option to retain property while repaying debts over time.

    How Does Chapter 7 Bankruptcy Affect Your Credit Score

    Filing Chapter 7 bankruptcy significantly impacts your credit score. You’ll see a substantial drop, especially if you had good credit before. The bankruptcy remains on your credit report for 10 years, making it tough to get new credit or loans at favorable rates.

    If you already have poor credit, the additional damage may be less severe. However, your ability to borrow and secure financial services will still be affected.

    Post-bankruptcy, you can start rebuilding your credit by:
    • Focusing on timely bill payments
    • Using secured credit cards responsibly
    • Reducing your debt-to-income ratio

    Despite the initial hit, bankruptcy can provide a fresh start, allowing you to improve your credit standing over time. Big picture, committing to rebuilding your financial health responsibly can help you get back on track.

    What Are The Alternatives To Filing Chapter 7 Bankruptcy

    You have several options to avoid Chapter 7 bankruptcy:

    First, you can create a debt management plan. Work with a credit counseling agency to negotiate lower interest rates and consolidate payments.

    Another option is debt consolidation. You can take out a loan to pay off multiple debts, leaving you with one monthly payment at a potentially lower interest rate.

    You can also negotiate directly with creditors. Contact them to work out reduced payments, lower interest rates, or settlements for less than the full amount owed.

    Consider filing a consumer proposal. This is a formal agreement to repay a portion of your debts over time, managed by a Licensed Insolvency Trustee.

    If you have regular income, Chapter 13 bankruptcy allows you to reorganize your debts into a 3-5 year repayment plan while keeping your assets.

    Debt settlement is another route. Work with a company to negotiate lump-sum settlements with creditors for less than what you owe.

    Lastly, seek credit counseling. Get professional advice on budgeting, managing debt, and exploring your options before deciding on bankruptcy.

    Overall, consider these alternatives carefully, each has pros and cons. Consult a financial professional to determine the best choice for your situation.

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    Can You File Chapter 7 If You'Ve Filed Bankruptcy Before

    You can file Chapter 7 bankruptcy again, but timing is crucial. If you previously filed Chapter 7, you must wait 8 years from the filing date to receive another discharge. For a prior Chapter 13, the waiting period is 6 years.

    You may file sooner without getting a discharge, which can temporarily stop creditor actions. For instance, if you face wage garnishment or lawsuits, filing can offer immediate relief.

    Consider Chapter 13 if you can't wait. The waiting period is shorter—just 4 years after a Chapter 7 filing. Chapter 13 allows you to set up a 3 to 5-year repayment plan for your debts.

    Prepare by gathering key documents like tax returns, pay stubs, and bank statements. Consult an experienced bankruptcy attorney to review your situation and advise you on the best path forward based on your financial circumstances and previous filings.

    As a final point, remember to explore other debt relief options first. But if you're overwhelmed by debt again, don't lose hope—options are still available even after a prior bankruptcy.

    Fees Associated With Filing Chapter 7 Bankruptcy

    Filing Chapter 7 bankruptcy involves several fees.

    • Court filing fee: $338 (as of 2023)
    • Credit counseling course: $15-$30
    • Debtor education course: $15-$35
    • Attorney fees: average $1,000-$1,750

    You need to pay the court fee when you file, unless you qualify for a fee waiver or an installment plan. To get a fee waiver, your income must be below 150% of the poverty line for your state and household size. You can spread payments over 120 days if you choose installments.

    You must complete a credit counseling course before filing and a debtor education course after. Some providers may offer these courses for free if you can't afford them.

    Attorney fees vary based on case complexity. Simpler cases may cost less, while complex ones can exceed $2,000. Lawyers usually require full payment before you file for Chapter 7.

    To put it simply, while Chapter 7 provides debt relief, you need to consider court fees, counseling course costs, and attorney fees. Make sure these immediate costs align with your long-term financial goals.

    How Does Chapter 7 Differ From Other Bankruptcy Chapters

    Chapter 7 bankruptcy differs from other bankruptcy chapters in several ways:

    1. Liquidation vs. Reorganization: Chapter 7 involves liquidating most unsecured debts quickly, unlike Chapter 13 or 11, which focus on debt repayment plans.

    2. Asset Handling: In Chapter 7, a trustee may sell your non-exempt assets to repay creditors. You often keep all possessions through exemptions, whereas other chapters usually allow you to retain more assets.

    3. Timeline: Chapter 7 is faster, typically completed in 3-4 months, while other chapters can take years.

    4. Eligibility: Chapter 7 has income restrictions and requires you to pass a means test. Other chapters have different criteria.

    5. Debt Types: Chapter 7 discharges most unsecured debts but doesn't eliminate obligations like recent taxes or student loans. Other chapters may offer more flexibility for these debts.

    6. Credit Impact: Chapter 7 often has a more severe immediate impact on your credit score than other options.

    7. Business Handling: If you own a business, Chapter 7 means ceasing operations and liquidating. Chapter 11 allows for restructuring and continued operation.

    In short, you should consult a bankruptcy attorney to determine which option best suits your financial situation.

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