Bankruptcy is an intimidating word that many people associate with large corporations, business owners, and economic downturns. Unfortunately, no one thinks it will apply to them until it does. Bankruptcy can also affect individuals who find themselves burdened by immense debts. Families in crisis who experience hard times sometimes find no other option but to file for Chapter 7 Bankruptcy.
You must pass a means test and follow specific guidelines to qualify for filing Chapter 7 Bankruptcy. Because of these rules, we recommend from our legal expertise that you hire an experienced attorney to handle your bankruptcy case.
We have outlined some information below to give you a clearer understanding of Chapter 7 Bankruptcy and what it entails for your financial situation.
Chapter 7 is a type of bankruptcy code that allows individual consumers to clear away debts they cannot afford to pay. Filing for Chapter 7 Bankruptcy is often the last resort for those who are behind on bills and cannot afford monthly payments. It is not a magic solution, though, as there are several drawbacks to filing for bankruptcy.
Typically, filers must sell all non-exempt assets and possessions in Chapter 7 Bankruptcy. Possessions considered non-exempt might include second vehicles, vacations homes, inherited valuables, savings, and investments. This process of selling items to pay off debts is known as liquidation. Certain exempt items are not required to be liquidated, such as a current residence, primary vehicle, and income for daily necessities.
In addition, Chapter 7 Bankruptcy can negatively affect credit long term. Filing for bankruptcy means you cannot uphold the agreed-upon payment schedule for loans and debt, which reflects on your credit score. Lenders will see the bankruptcy on your credit report for the ten-year period after filing. Even after the bankruptcy discharges, lenders may not approve your applications, or if they do, your rates may be steep with unfavorable terms.
We do not share this information to discourage you but to ensure that you know all the facts for filing Chapter 7 Bankruptcy. It is best to explore all alternative options before hastily choosing bankruptcy.
If you find yourself overrun with unsecured debts such as credit card debts, medical bills, or excessive unpaid monthly bills due to unexpected job loss, filing for bankruptcy may be your last resort. Roy & Associates have the expertise and knowledge to help you navigate these unchartered waters if that is the case.
Our team of professionals is available to educate you on the steps of filing Chapter 7 Bankruptcy and guide you through the process.
The Means Test determines Chapter 7 Bankruptcy eligibility and is designed only to pass those who cannot pay their debts in any capacity. Passing the means test ensures that a filer does not have disposable income to pay off debts and restricts the number of filers who can have debts forgiven through this type of bankruptcy.
The Chapter 7 Means test considers the family size, income, and necessary expenses when determining eligibility. To complete a Chapter 7 means test calculation, follow these steps:
The first step in determining if you qualify for Chapter 7 Bankruptcy is checking if your household income is lower than the median family income for your state. For a single-earner family in Florida in 2021, that income limit is $51,559. Additional state information is available with the Department of Justice.
To ensure that you have the proper documentation to present in bankruptcy court, you should gather all income information for the past six months. If there are changes in income during this period, the means test will take that into account. Examples of this are if you only worked for two of the last six months or recently started working a higher-paying job.
If your income is below the median family income for your state, you’ve passed the Chapter 7 Means Test. Your attorney will help you fill out all necessary paperwork for filing and submit it to the court.
In most cases, those who take the means test pass and can continue with filing. There is a second step for the low percentage who do not pass but still believe they qualify.
This step determines the amount of disposable income you have that could go towards paying off debts. To develop this number, gather records of all family expenses over the last six months.
These expenses only include what is allowable based on local or national standards. Local standards include factors based on your location, such as mortgages, rent, and car payments. National standards cover basic necessities such as clothing, toiletries, and groceries.
Determining disposable income is an area where having an experienced attorney is essential to avoid making any errors in your Chapter 7 calculations. They will know which standards to use for which line items and will help to make sure you do not leave anything out. Being thorough in this process reduces the risk of your case getting thrown out due to the presumption of abuse.
After adding up all of your expenses, you are eligible to file for Chapter 7 Bankruptcy if your calculation is deemed low enough.
If you pass the means test by having an income lower than the median family income or having low disposable income, you can begin the Chapter 7 Bankruptcy filing process. Filing for bankruptcy is your official statement that you are unable to repay debts.
Chapter 7 Bankruptcy will halt debt collections, foreclosures, wage garnishments, and other collections of similar nature. A court trustee will assess your case and oversee the sale of any non-exempt items to repay creditors. Once these proceeds are exhausted, your case will move to discharge. This discharge eliminates all remaining consumer debts, and you will no longer be responsible for repayment.
If you do not pass the Chapter 7 Bankruptcy means test because you are above the median family income or have high amounts of disposable income, you are not entirely out of options. There is no appeals process, but because the means test considers income and expenses over the past six months, you can attempt the means test again after six months.
If your situation changes with overall income and disposable income decreases, you may find that you now qualify for Chapter 7 Bankruptcy. For those who need an immediate solution or still do not qualify after an additional six months, they can opt for Chapter 13 Bankruptcy.
Your debts are not forgiven entirely in Chapter 13 Bankruptcy, but the court sets up an appropriate repayment plan over the course of three to five years to make repayments more manageable. A benefit to this type of bankruptcy is that you can keep essential assets you wish to keep unlike with Chapter 7 Bankruptcy.
Many factors determine whether you should file for Chapter 7 vs. Chapter 13 Bankruptcy, and your attorney can help you make the best decision for you.
Roy & Associates is your best option for experienced advice if you are seeking legal assistance for bankruptcy proceedings. Our professionals have extensive knowledge of the court system and understand the necessary steps for filing for bankruptcy in Florida. We can assist with Chapter 7 or Chapter 13 filings and even have advice for alternatives before filing so you can make the most beneficial decision.
Our mission is to obtain fair and just results for your bankruptcy case in and out of the courtroom. Call us today at (561) 729-0095 to begin discussing your specific case so you can stay a step ahead on your finances.