Bankruptcy has helped millions of people across the country get rid of their debt load. One of the most common types of bankruptcy individuals file for is Chapter 7 bankruptcy. Our attorneys explain what Chapter 7 bankruptcy is and who is eligible.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as "straight" or "liquidation" bankruptcy, allows the filer to achieve financial freedom from debt in the most efficient way possible. Chapter 7 eliminates “unsecured debt,” which is debt that is not attached to a material form of collateral.
Chapter 7 bankruptcy eliminates a wide range of unsecured debt, such as:
- Credit card debt
- Medical bills
- Personal loans
- Payday advances
- Utility bills
- And more
Qualifications You Need to File for Chapter 7 Bankruptcy
To determine whether you qualify for Chapter 7 bankruptcy, you will need to take the bankruptcy “means test.” The means test determines whether your income is low enough for you to file for Chapter 7 bankruptcy by using a special formula. The formula is designed to keep high-wage earners from filing Chapter 7.
In general, you would qualify for Chapter 7 bankruptcy if your income is less than the state average income. However, you could earn significant monthly income and still qualify for Chapter 7 if you have many expenses and high mortgage or car loan payments.
What If My Income Is More Than the Median?
If your income is higher than the state median income, you will need to find another bankruptcy chapter. Chapter 13 is another common bankruptcy option many individuals use to eliminate debts.
Chapter 13 bankruptcy reorganizes debt into one monthly payment that lasts between three to five years. Once the payment period ends, the remaining debt will be discharged. Chapter 13 bankruptcy makes debt payments much more manageable for individuals and couples.