The purpose of filing bankruptcy is to give the “honest, but unfortunate debtor” a fresh financial start. It is hard to do this if you come out of bankruptcy with close to the same debt load as when you filed your case. When you file bankruptcy, you have a choice about what chapter to file. What debt is discharged (eliminated, or no longer considered due and payable) and what debt is still owed after your case is determined, in part, by the chapter of filing. Most debtors prefer to file a Chapter 7 case rather than a Chapter 13 case, because a Chapter 7 acts to discharge all of your unsecured debt. In contrast, a Chapter 13 case is like a loan consolidation, and a portion of your unsecured debt will be paid through the case over a period of up to 5 years.
The Chapter 7 discharge eliminates the following types of debt:
- Unsecured debts; like credit cards, signature loans, or medical bills.
- Secured debt for property you decide to surrender to the lender.
What is not discharged are things like student loan debt, unless you can meet a strict standard that your future is bleak, with no hope of ever finding gainful employment that would allow you pay even a part of your student loans back; taxes; child support obligations; any debt that was incurred under false pretenses; and debt that was incurred with the intention of discharging it in bankruptcy. The benefit to a Chapter 7 case versus a Chapter 13 case is that discharge is entered much faster. The typical Chapter 7 takes from about 4 to 6 months, while a Chapter 13 can last anywhere from 3 to 5 years. You are also not required to make monthly payments to the Bankruptcy Trustee with a Chapter 7, but are required to do so in a Chapter 13 case. Given these attractive benefits, it is no wonder most debtors seek to file a Chapter 7 case. However, there are certain requirements that must be met in order to be eligible to file a Chapter 7.
Debtors must qualify for a Chapter 7 after having completed a means test calculation. This complex math requires a debtor to compare their secured debt to their disposable income, and if there remains even a small portion of disposable income to put towards unsecured debts after the secured obligations are met each month; the debtor will be required to file a Chapter 13 case. We can help by reviewing your monthly budget, income, and expenses and making the computation for you. A misstep in the means test could mean that your case is not allowed to be filed at all, so it is critical to get it right. Call us today for help.
For more information about Chapter 7 bankruptcy, contact us at www.DsouzaLegalGroup.com. We will help by coming up with solutions that work for you.