Chapter 7 is a powerful legal tool that allows you to clear many types of unsecured debts such as credit card debt, medical debt, payday loans and car loans. If you are behind on your debts and cannot afford to pay your monthly bills and other living expenses, filing a chapter 7 bankruptcy can help you reset your finances.
If you have more debt than you’ll ever be able to pay back with your current income and property, then you should consider filing a chapter 7 bankruptcy.
What is Chapter 7 Bankruptcy?
In chapter 7 bankruptcy filing, you will fill out forms for what all you earn, owe, own and submit the forms. If you are employed, you will also need to provide your tax returns and pay stubs.
All your debts will be put on hold and creditors will be exempted from collecting payments, garnishing your salary, home foreclosure, evicting you and repossessing your property. All legal possession will be held by the court and a bankruptcy trustee will be appointed to your case.
The trustee will review your assets and finances and watch over your chapter 7 bankruptcy. They will ask you various questions about what you fill in the forms. They will sell your non-exempt property to pay off your creditors and arrange a meeting where you will go to the courthouse and talk about your filing. The property value that you can exempt varies state to state.
A few months after the filing, the bankruptcy court will let you know by mail if your discharge is official or not. People who legitimately have a problem and fill out their forms properly will get their filing accepted by the court.
Chapter 7 vs. Chapter 13 Bankruptcy
These are the two common types of bankruptcies that affect consumers. Both of these can help if you cannot pay your bills. However, there are some differences between the two.
You need a low income to qualify for a chapter 7 bankruptcy. The bankruptcy court will appoint a trustee and the trustee can sell off your nonexempt property to pay your loans.
A chapter 13 bankruptcy will give you an affordable repayment plan while keeping your loans. You have to have enough income to afford the payments and also be below the maximum debt limits which is around $419,000 for unsecured debts and $1,250,000 for secured debts.
The bankruptcy court will approve the chapter 13 payment plan that will usually last three to five years and the trustee will collect your payments and distribute them among the creditors. As the plan is done, the rest of the unsecured debts are discharged.
Which Debts Cannot or Can be Erased?
Chapter 7 bankruptcy cannot erase debts such as:
- Child Support
- Government Tax Debts
- Student Loans
…and other non-dischargeable loans.
Chapter 7 bankruptcy can erase debts such as:
- Credit Card Debt
- Car Loan
- Medical Bills
- Utility Bills
…and other dischargeable debts.
When a person files a chapter 7 bankruptcy all their debts are temporarily frozen and stops anyone from collecting any debts that you owe them.
Who Can Qualify for Chapter 7 Bankruptcy?
There are some requirements you need to meet to qualify for a chapter 7 bankruptcy:
There is a difference between who should file and who can file a chapter 7 bankruptcy. If a person who earns less than the median income for their state, they can file for a chapter 7 bankruptcy.
A person filing for bankruptcy needs to pass a means test to qualify and during the past 6 months, your income must be less than the median income set by your state. You can file a chapter 13 bankruptcy if you do not pass the means test but not a chapter 7 bankruptcy.
- You can’t have filed a chapter 7 bankruptcy in the past 8 years
- You can’t have filed a chapter 13bankruptcy in the past 6 years
- If your case was dismissed, you have to wait 6 months to file again
How Much Does Chapter 7 Bankruptcy Cost?
A $338 filing fee is needed to file for a chapter 7 bankruptcy. You can qualify for a fee waiver if you earn below 150% of the federal poverty line or you can pay the fees in instalments if the court allows you to. If you hire an attorney, the fees can cost around $1500 for a chapter 7 case.
It depends on you if you want to file a chapter 7 bankruptcy San Diego. Hiring a chapter 7 bankruptcy attorney or taking a credit counselling course are two of the options you can take to get out of debt San Diego.