Questions About Chapter 7

As one of the most commonly sought after forms of bankruptcy protection, Chapter 7 comes with some unique challenges and features. While not everyone will qualify for Chapter 7 protection many people do seek it’s help each year. There are three main questions that surround the Chapter 7 process.

Do I qualify for Chapter 7?

As of 2005, bankruptcy laws require that anyone filing for Chapter 7 pass a means test. This test compares a debtor’s income to the median income level of their state of filing. In order to qualify for Chapter 7 a debtor’s income must be less than the median income level of the state, income levels that are higher must pass further qualifications. At this stage, a debtor’s disposable income must be determined to be insufficient to repay their debts if they are to be eligible for Chapter 7.

What debts are eligible for discharge?

Most people assume that because all of their debts must be listed in the filing petition that all of their debts will qualify for a debt discharge. In fact, there are several types of debt that do not qualify for discharge under a Chapter 7 case. Debtors who owe back due child support, back taxes or have student loan debt may find that these debts are not eligible for the Chapter 7 case.

What happens to my assets?

While most people fear losing their assets in Chapter 7 bankruptcy, this isn’t always the case. Secured debt assets do run a higher risk of being liquidated by creditors if the debts are not repaid, but there are many circumstances in which the bankruptcy court may exempt or protect certain assets from being seized by creditors. Depending on the debtor’s state of residence and filing, bankruptcy exemption laws may keep assets such as a house or car out of the hands of creditors.