Bankruptcy is a powerful solution for challenging personal financial matters. Individuals with massive debts and those facing particularly aggressive attempts at debt collection may file for bankruptcy. If they meet certain standards and fulfill court requirements, they can eliminate some of their debts.
A successful bankruptcy filing can discharge someone’s debts and temporarily stop collection activity. Creditors have to dismiss lawsuits and stop calling someone to try the force them into making payments until the courts resolve their bankruptcy filing.
After someone reaches the realization that bankruptcy might be the best choice given their current circumstances, they then have to choose what type of bankruptcy to pursue. Most individuals either file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. Fewer people qualify for Chapter 7 proceedings than for Chapter 13 proceedings.
How can someone validate whether a Chapter 7 filing may be an option in their case?
By performing a means test
The most important restriction on Chapter 7 bankruptcy relates to the income of the filer. The person filing should look at what they have earned over the last six months as a way to calculate their annual household income.
Generally, someone needs to adjust their income by deducting certain allowable expenses. They then compare the adjusted income amount with the median income in their state based on their household size. The figures for median income regularly change. In some cases, people may be very close to qualifying and may need assistance reviewing their financial records to see if they miss adjustments that could make them eligible for a Chapter 7 bankruptcy.
By looking at their personal holdings
Some people refer to a Chapter 7 bankruptcy as liquidation bankruptcy. The process may require the sale of certain assets to repay creditors. Filers are empowered exempt certain resources, including some home equity and retirement savings. But, depending on someone’s personal resources, they could stand to lose highly valuable property during the liquidation process. A thorough review of what someone can exempt and what they currently own is an important part of determining whether Chapter 7 or Chapter 13 bankruptcy is the better option.
Learning more about Chapter 7 bankruptcy requirements and proceedings may benefit those who believe they need immediate support to address their financial challenges. Seeking legal guidance is a good way to get started.
