Chapter 7 bankruptcy is the most common type of individual bankruptcy filing. It is primarily used by debtors when they have no assets that their Chapter 7 trustee can liquidate and they have an inability to pay their unsecured creditors.
The first consideration in determining whether Chapter 7 bankruptcy is a viable option for you is to complete the Means Test. The means test takes your gross income and then subtracts your allowable deductions (anything ranging from your car payment to your charitable contributions) to determine if you have anything left to repay your unsecured creditors after paying off all your other bills. If you still have more than a couple hundred dollars left over each month then you probably are more likely looking at a Chapter 13. If you dont have any money left (and most likely you don’t if you’ve come to see us about filing bankruptcy), then you can qualify for a Chapter 7 discharge.
The other primary consideration when evaluating the wisdom of you filing Chapter 7 is to determine if you have any assets that the trustee can liquidate if you file that chapter. That means figuring out what your car and house are worth versus what you owe on those items, whether you have any existing lawsuits as a plaintiff, etc.. It sounds scary, but the vast majority of Chapter 7 debtors lose nothing they want to keep. That’s because you get to exempt some property from your trustee and usually your big items (example: your house and your car), dont have any equity in them anyway, so your trustee could care less about them.
Another thing we are going to look at when evaluating you as a Chapter 7 candidate is whether you are in arrears on your house and car and want to keep those items. Whereas a Chapter 7 can enable you to temporarily stop a repossession or a foreclosure, if you want to devise a payment plan to get caught up on these payments in the long term, you really should be thinking more about a Chapter 13.
There are a lot of myths to dispel about Chapter 7 bankruptcy. The most important myths that need clarification are that you can keep both your house and your car in a Chapter 7. There simply is no rule against it, and most debtors do keep those items if that want to in a Chapter 7. There could be specifics about your case where you could lose them to your trustee or a bank in a Chapter 7, but evaluating that risk is what the free initial consultation is about.