Chapter 7 bankruptcy in the United States is intended to allow individuals to eradicate some or all of their debts, but there are some qualifications an individual has to meet. Each year millions of people file for bankruptcy, and every case is different. A bankruptcy attorney can help you determine if you qualify for a Chapter 7 or a Chapter 13.
A liquidation or Chapter 7 bankruptcy allows for the sale of all property, not protect by the Bankruptcy Code, to be sold with the proceeds used to pay the debts. Certain property, such as one vehicle for each licensed driver, a boat, family home, furniture, certain jewelry, clothing, pets, books, collectibles, firearms, electronic equipment, furs and insurance policies, are protected by the Bankruptcy Code and cannot be sold. However, there is a maximum dollar value. For example, when filing for bankruptcy, if your total debt is $140,000 and you own jewelry and furs totaling $200,000, the bankruptcy trustee can seize and sell the property to pay outstanding debts. Once a Chapter 7 bankruptcy is filed and then discharged, the debtor is no longer responsible for the any of the debts listed in the bankruptcy. A liquidation bankruptcy is designed to provide the debtor with a fresh start. Debts with liens are not dischargeable, and payments are still the responsibility of the debtor.
To qualify for a Chapter 7 bankruptcy, the debtor’s annual income needs to be lower than the state’s median income for their family size. Each state’s median income is different. Next the bankruptcy court will compare the disposable income to the total amount of unsecured debts. If the disposable income for the next five years is less than $6,000 the most likely they qualify for a Chapter 7 bankruptcy. Most people file a Chapter 13 bankruptcy in which minimal payments are made to creditors. Chapter 7 bankruptcies are reserved for those who have no means to repay their debts. All bankruptcy clients are required by law to attend debt counseling sessions and complete a debt education course.