When you file for bankruptcy, the common chapters under which you can file are chapter 7 and Chapter 13. Chapter 7, also known as liquidation bankruptcy, helps you to discharge and erase most of the debts, while chapter 13 which is also known as the repayment plan, helps to organize all your dents into a systematic repayment plan without selling off any assets.
How to qualify for Chapter 7
Depending on the state that you reside in or file for bankruptcy, the rules for qualification may vary slightly. To qualify for Chapter 7 bankruptcy, your income must either be equal to or lesser than the Median Income as per the state.
However, if your income is more than the state median, you will be required to take a “Means Test” to check your eligibility for filing for bankruptcy under chapter 7.
Chapter 7 means test
The means test basically checks your ability to pay back your creditors and not discharge your debts unless the need is there. This is calculated after assessing your debt and income for a minimum period of 6 months. So, after paying all the debts, if you have even a small amount of money left with you, you will not qualify for the means test. The means test prevents those filers from getting approved, who despite having money apply and try to get discharged from their debts.
Who is not eligible for filing for bankruptcy under chapter 7?
Under the below-mentioned circumstances, you become in-eligible for filing under chapter 7
- If your previous debt was discharged within 8 years under chapter 7
- If your previous debt was discharged within 6 years under chapter 13
- You are eligible for filing for bankruptcy under chapter 13
- You did fraud with either the bankruptcy court or the creditors
- You did not attend the credit counseling
Steps to file for Chapter 7
The first and foremost step before filing for bankruptcy is to attend a credit counseling session with an agency that is approved by the united states trustee. Post attending this, you can file for bankruptcy under chapter 7. To understand the cost of filing, you can get in touch with the trustee’s office to know the exact amount. The paperwork includes that you must furnish are –
- All details of your secured and unsecured debt
- Sale of any property prior to filing
- The list of exempted property (if any)
An automatic stay is issued once you file for bankruptcy. This stay, helps to protect you from all collection attempts of the creditors during the phase of your bankruptcy filing.
An automatic stay will protect you from –
- Wage garnishment
- Filing of liens
- Foreclosure of property – house, cards
Once the bankruptcy court is discharged or terminated (rejected or dismissed), even the automatic stay is lifted and the creditors can resume the collection activities again.
What does the trustee do?
The trustee is the court-appointed official who oversees the entire process of bankruptcy – checking and analyzing the documents, selling the property to arrange funds to pay off creditors to deciding which creditor’s dues are of priority and who should be paid first.
The meeting of the creditors
Though known as the creditors meeting, it is optional for the creditors to attend it. It is mostly presided over by the trustee who checks and reviews all the documents submitted by you while filing for bankruptcy. Based on this meeting, your case is forwarded ahead or dismissed.