July 21, 2019

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Chapter 7 Bankruptcy for Consumers

Chapter 7 bankruptcy for consumers relieves you from specific debts and debt collectors so you may have a “fresh start.” Chapter 7 is a popular option among individuals that are facing consumer debt problems and meet the Chapter 7 requirements.

The eligibility for individuals filing Chapter 7 bankruptcy is based on income and the Bankruptcy Code’s “means test.” If you are eligible for a Chapter 7 bankruptcy you may be granted relief, or discharge, from your debt no matter the amount of your debt.

Why is Chapter 7 Bankruptcy Referred to as Liquidation?

Before you are granted relief, or discharge, under Chapter 7, all of your “non-exempt” assets must be sold and the proceeds will be used to pay off creditors.

Fortunately, you will not lose all of your property.  Many of your assets will be exempt for the bankruptcy proceedings, so you will be able to keep those assets while still pursuing bankruptcy discharge. The debts that are not paid off are generally discharged. Which or your property qualifies as exempt versus non-exempt is governed by the laws of each state. Contact one of the consumer bankruptcy firms in this website to find out which of your assets are exempt and which are non-exempt.

Is My Future Income Protected if I file for Chapter 7 Bankruptcy?

Under Chapter 7, your future income and earnings are protected. A bankruptcy discharge may be granted as quickly as 4 months from when you start your bankruptcy case. From that point on what is yours is protected from the creditors listed in the discharge of your bankruptcy case.

What Hurdles Come Along with Filing a Chapter 7 Consumer Bankruptcy?

The hurdles you may face with a Chapter 7 bankruptcy case:

  • You must receive credit counseling from an approved credit counseling agencies within 180 days prior to filing for bankruptcy
  • If your current monthly income is more than the state median you must pass the “means test” of the Bankruptcy Code.  If you do not pass the Bankruptcy Code’s Chapter 7 “means test” your bankruptcy case will generally be converted to a Chapter 13 filing.
  • You may lose your “non-exempt” property
  • There is no absolute right to a discharge (however, 99% of the individual Chapter 7 cases that are not dismissed or converted to Chapter 13, receive a discharge)
  • Certain secured debts of yours may not be discharged and secured creditors may still have rights to your property
  • Bankruptcy results in a damaged credit score & difficultly obtaining future personal loans for up to 10 years

What are the Alternatives to a Chapter 7 Bankruptcy?

If you are engaged in business (Chapter 11), are a farmer or fisherman (Chapter 12), or have a regular income (Chapter 13) a different bankruptcy filing may be a better fit for you. Debt counseling and out-of-court negotiations with your creditors may be an option too.

Use our database of consumer bankruptcy law firms to find a consumer bankruptcy law firm in your area and consult with an experienced attorney about your consumer bankruptcy options.