What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the chapter that most people think of when they think of bankruptcy. It allows a person to eliminate most forms of debt, including credit card debt, personal loans, medical bills, car repossession deficiencies, and some taxes. Some debts, such as child support, are never dischargeable.
In order to file for Chapter 7 bankruptcy, an individual must “pass” the means test. The means test is the calculation that determines whether Chapter 7 bankruptcy is presumptively abusive, which can lead to the dismissal of the case. The means test sets a maximum annual gross income that an individual can have in order to qualify for Chapter 7 bankruptcy. If someone initially “fails” the means test, then they will proceed with the second set of calculations in order to determine if they can still file for Chapter 7 bankruptcy. If they “fail” the second set of calculations, then there is a presumption of abuse and the U.S. trustee can request that the case be dismissed.
Prior to filing for bankruptcy, an individual is required to complete a credit counseling class, which can be done online. Prior to receiving a discharge, an individual will need to attend a meeting of creditors (341 hearing) wherein the trustee confirms that the information contained in the bankruptcy paperwork is correct. Creditors have the option of attending this meeting, but they very rarely do.
A person who files bankruptcy will also have to complete a financial management class, sometimes referred to as a debtor education class, which can also be done online.
What Assets Will I Be Able To Keep After Completing Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is meant to eliminate a person’s debt and provide them with a fresh start. Since it would be very difficult for a person to have a fresh start after losing all of their possessions, certain assets are allowed to be kept in Chapter 7 bankruptcy, such as a house, car, and household goods. This is achieved through the use of exemptions, which are determined by state or federal law, and allow you to protect certain amounts of equity in certain property. A debtor can keep their assets so long as the equity in those assets is equal to or less than the exemptions. If someone has a significant amount of possessions that exceeds the exemptions, then they should consider Chapter 13 bankruptcy in order to protect their property.
What Is Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy reorganization plan allows for the repayment of debt to secured creditors (with some interest) over the course of 36 to 60 months. Depending on the individual’s income and expenses, they will generally repay only a fraction of the total amount of debt owed. Chapter 13 bankruptcy is typically used to save a house that is in foreclosure and to protect a car from repossession. Many people have used Chapter 13 bankruptcy to stop municipalities from impounding their cars or suspending their licenses due to municipal fines such as parking tickets. The typical scenario involves an individual who experienced a temporary decrease in their income from something like unemployment, and then returned to work but was unable to pay their mortgage or car loan arrears.
What Requirements Must Be Met In Order To File For Chapter 13 Bankruptcy?
In order to qualify for Chapter 13 bankruptcy, an individual must have no more than $1,257, 850.00 in secured debt, and no more than $419,275.00 in unsecured debt. These debt limits were revised on April 1, 2019 and are revised every three years. A debtor must also have sufficient income to fund a Chapter 13 payment plan. In Chapter 13 bankruptcy, the means test determines the minimum amount that the debtor must repay to general unsecured creditors, as well as the length of the Chapter 13 plan. If a debtor “passes” the means test, then the amount that will need to be paid back to general unsecured creditors will be determined by the amount of disposable income, which is the amount of income that is left over at the end of the month after the deduction of reasonable expenses. If a debtor “fails” the means test, then the minimum amount that will need to be paid back to general unsecured creditors will be determined by the means test.
What Assets Will I Be Able To Keep After Chapter 13 Bankruptcy?
Since the debtor repays their creditors through Chapter 13 bankruptcy, they get to keep all of their assets.
For more information on Chapter 7 Bankruptcy In The State Of Illinois, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (630) 509-8989 today.
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