If you are a consumer that is is facing significant debt issues, you may be starting to consider bankruptcy as an option. As the number of bankruptcy filings in the United States continue to increase you can be assured that you are not alone. The bankruptcy process itself can be intimidating and becoming educated on the process is imperative. Before you are ready to file you should learn the bankruptcy laws for your state and gather personal financial information that will be needed for the process. This information will include tax returns from the previous two years, car titles, any loan documents, deeds to real estate that you may own as well as a list of all your secured and unsecured debts. This information can be difficult to gather, but ordering your credit report can assist in this process.
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What does it mean to file for Chapter 7?
Filing for Chapter 7 bankruptcy essentially allows the bankruptcy trustee to take any non-exempt asset that you own and liquidate it in order to repay your creditors. These assets can include homes, cars, properties, and other valuable items. In exchange for this, the debtor will be discharged of most or all of their debt. According to state specific bankruptcy codes, there are assets the consumers have the right to retain, which essentially makes them off limits for trustees. It is important to check with your state about bankruptcy exemptions to determine which assets can qualify as exempt. Sometimes the consumer filing for chapter 7 does not have any assets that the trustee can sell to repay the creditors and in this case the consumer actually is discharged of their debt without losing anything.
Am I eligible to file Chapter 7?
Consumers that are ready to begin the bankruptcy process will almost always be filing a Chapter 7 or a Chapter 13. The majority of consumers (65%) filing for bankruptcy end up filing chapter 7 and this is usually the best option for people facing overwhelming debt. While is it uncommon, about 15% of debtors will face a BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) Means Test. The Means Test is given to consumers whose gross income is higher than the median for their state for the 6 months prior to their filing. It also determines if a consumer is eligible to file a chapter 7. If this test determines that the consumer's disposable income is less than $100 a month, they will be eligible for Chapter 7. For individuals whose gross income is less than the median for their state, they are automatically eligible for Chapter 7.
Who is Chapter 7 Bankruptcy best suited for?
It is believed that people who own little property are a good candidate for filing Chapter 7. Under this chapter of bankruptcy, the bankruptcy trustee can sell off some of the debtors property in order to repay the creditors. However, if a consumer has little property there is not much that can be taken away allowing them to lose very little.
Chapter 7 is also best suited for those with a very low income. The alternative option to filing chapter 7 is filing chapter 13 where the consumer is required to make monthly payments to their creditors to repay the debts. Not only must the debtor make sure to make their monthly payments, they must also have enough disposable income leftover to pay for monthly living expenses. This is why Chapter 7 is often the best choice for those with a low income.
Chapter 7 is also best suited for consumers with large amounts of unsecured debt, such as credit card and medical bills. Once your assets have been liquidated to repay the creditors, you will receive a discharge of your debt which states that you have no further obligation to payoff your remaining debts.
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