Chapter 7 bankruptcy is a practical solution for solving debt problems. Successfully going through a chapter 7 will result in a discharge of your personal obligation to debts that you have. To get that discharge you will have to show the Court that your household qualifies under the bankruptcy means-test, that your monthly expenses exceed your monthly income, and disclose all of your assets. An experienced attorney can help you prepare an accurate filing with the Court and know exactly what other documentation you will have to present.
The bankruptcy means-test is the calculation that the Bankruptcy Court uses to determine if someone has made below the average median income for your household size. It is based on IRS the average incomes for your region and household size. For Louisiana those figures can be found through the Department of Justice website and are updated regularly. This is the first test to know if a Chapter 7 bankruptcy is available for debt relief. This is why it is common for bankruptcy attorneys to ask their clients for their last 6 months of pay statements so a determination on the means-test can be made.
If the means-test is passed then another requirement is to detail your monthly income and expenses to show that you do not have any disposable income. Detailing all of your expenses starting with your housing, all the way down to transportation needs is necessary to show that in total your monthly expenses exceed your monthly income. The purpose is to show that after you pay all of your bills you do not have any money left over to pay your debts.
Additionally, it is necessary to disclose all of your assets to the Bankruptcy Court. The Bankruptcy Court needs to know if there are any nonexempt assets which can be collected by the Court. Often this review is handled by a bankruptcy trustee assigned by the Department of Justice at a 341 Meeting of Creditors. The review is made to see how much your assets are worth and if there is any that could be sold to satisfy some of your debts. The most important factor here is understanding the exemptions allow you to protect your assets and property up to a statutory limit. If all of your assets qualify as being exempt then a chapter 7 is likely to be successful.
Chapter 7 Bankruptcy FAQ’s
How Does Chapter 7 Bankruptcy Work?
Chapter 7 Bankruptcy is a process were a person, the debtor, can file with the Bankruptcy Court and ask to have their debts discharged or wiped out. The debtor fills out, usually with the assistance of a bankruptcy attorney, the Bankruptcy Petition and submits it to the Bankruptcy Court. The Petition is a set of forms over 40 pages long that detail three primary sets of facts: how much money you make, how many assets you have and their value, and what debts you owe. Based on that information the Debtor might be granted the Discharge of Bankruptcy.
Who Qualifies for Chapter 7 Bankruptcy?
The first and most important part to qualifying for Chapter 7 Bankruptcy is the income threshold. Bankruptcy is a means-test system, which means it is based on a test of the debtor’s ability to make payments. For Chapter 7, that test is based on the average income for your household size in your region. This number changes regularly to stay current with the income averages. If you make less than the average, then you can file for a Chapter 7 Bankruptcy. If you are above the average income for your family size, you may still be eligible based on other household expenses that you may have. Second, if you meet that means-test income threshold, your monthly expresses also must exceed your monthly income showing that you have no additional money left over each month to pay your debts.
Even if you qualify there can still be reasons to not file under Chapter 7, often because of the assets you have. Consult a bankruptcy attorney before filing.
The Department of Justice provides the data for median family income here: https://www.justice.gov/ust/means-testing
What Debts Are Discharged in Chapter 7 Bankruptcy?
When a debtor received a discharge of bankruptcy most consumer debts are discharged and your personal obligation for paying those debts is over. Consumer debts are those that are entered into through an agreement, such as credit cards, personal loans, and pay day loans. This will also apply to secured loans, such as auto loans and mortgages, but to keep the property tied to those loans you would continue to make payments on them. Debts that are typically not dischargeable are child support, tax obligations, and student loans.
What Do You Lose and What Can You Keep in Chapter 7 Bankruptcy?
When it comes to the things that you own, your assets, you get to keep what is deemed “exempt”. Exemptions are determined by law makers as a list of assets or the value of an asset that cannot be seized by creditors and is protected in bankruptcy. For Louisiana, the exemption rules have been determined by the State Legislature because they opted out of the Federal standards.
Here in Louisiana fully exempt assets include personal house-hold items, clothing, most retirement accounts, the Earned Income Tax Credit, and tools of your trade. You are also able to exempt the value up to certain dollar amount for the following assets: a single car, your primary residence, wedding rings, and firearms. If the value of the asset exceeds the exemption amount, you may have to surrender the item. The most notable non-exempt asset in Louisiana is cash. That means money in your bank account or from your regular tax refund could potentially be surrendered in bankruptcy.
The exemptions are listed by the legislature here: http://www.legis.la.gov.
How Long Does Filing a Chapter 7 Bankruptcy Take?
A typical Chapter 7 Bankruptcy case will take about 6 months from start to finish. Once you meet with a Bankruptcy Attorney you will take the time to provide all required documents necessary to complete your Bankruptcy Petition. Your Bankruptcy attorney will then prepare the documents, review them with you, and file them with the Bankruptcy Court. After the case is filed you will have a hearing with the Bankruptcy Trustee to confirm the information in the Bankruptcy Petition. If there are no issues the case is held open for at least 90 days after the hearing. If the 90-day period passes without any objections the Court will enter an order granting a discharge and close your case.
How Long Does a Chapter 7 Bankruptcy Stay on Your Credit Report?
A Chapter 7 Bankruptcy will stay on your credit report for 10 years. However, having a bankruptcy on your credit report is usually not nearly as harmful to your credit score as high balances, delinquent payments, or accounts in collection. Typically, a debtor will have their credit score improve within 12-18 months after bankruptcy, particularly if you follow good credit building steps such as getting a secured credit card.
How to File for Chapter 7 Bankruptcy?
It is always advisable to consult an attorney if you are considering filing for Bankruptcy. Bankruptcy Consultations are free. A consultation with a Bankruptcy Attorney is a review of your situation to help you determine if you should file, when you should file, and what the costs are going to be.