Each year, more than a million Americans file for Chapter 7 bankruptcy, making it the most popular form of personal bankruptcy by a wide margin. And there’s no mystery why Chapter 7 is so popular: In Chapter 7, consumers may eliminate the vast majority of their debt, including medical bills, credit card debt, and some personal loans. There are, however, a few restrictions on who can file for Chapter 7 bankruptcy, and some limitations on the types of debts filers can extinguish.
Chapter 7 Means Test:
Before filing for Chapter 7, you must take a means test—but don’t worry, it’s not as painful as it sounds. The means test simply compares your income to the median income of residents of your state. If your income falls below the median, you may be eligible. By limiting Chapter 7 to those with relatively low incomes, federal courts ensure that this powerful form of debt relief is reserved for those who need it most. But there are several steps involved in the means test, including a calculation of your income and a summation of your unsecured debts. The complexity of the means test leads many filers to consult a bankruptcy attorney before starting the process.
Eliminate Unsecured Debts:
Once you qualify for Chapter 7, you’re well on your way towards bankruptcy relief. And while Chapter 7 doesn’t eliminate every kind of debt, it can wipe out the most common forms of consumer debt.
Chapter 7 was built to attack unsecured debt, or the loans held by creditors that don’t have a lien against the debtor’s property. This includes credit card debt and medical bills, the leading causes of personal bankruptcy.
The Speedy Chapter 7 Process:
Filers are often surprised by how swiftly their Chapter 7 case progresses. While the length of a Chapter 7 case varies for each debtor, the typical case only lasts a few months. The process involves an initial filing, some action by the trustee, and a meeting with creditors, which usually lasts a few minutes, and often doesn’t even involve your creditors.
Of course, Chapter 7 may not be for everyone. If your income is too high for Chapter 7, Chapter 13 bankruptcy might be the best option. To help decide which is right for you, contact a local bankruptcy attorney today.