How A Chapter 7 Bankruptcy Works
Call us today at 601-292-6981 for your free initial consultation about your particular situation.
A chapter 7 bankruptcy is specifically designed help people wipe out unsecured debts like credit cards, medical bills, checking cashing loans, charge accounts like Belk, Dillard's, J.C. Penney's, and similar debts that are not secured by any type of collateral.
In a chapter 7, you can keep secured debts like cars and your houses. However, if you decide to keep the car, house, or any other property securing a loan, then you will have to continue to make your monthly payments on these items.
The Advantages of Chapter 7
Under Chapter 7 bankruptcy, the vast majority (if not all) of your unsecured
debt will most likely be discharged, or eliminated completely. As explained above,
if you have secured debts like a car and a house, you can continue to have these
debts, if you so choose, if you continue to make your monthly payments and are
not behind on these debts. Otherwise, you may have to file a Chapter 13.
Another advantage of Chapter 7 is that it's a quick process – like ripping off
a band-aid – small pain, small loss. Most people receive a full discharge after just a
few months. Even better, creditors aren't allowed to contact you during the
proceedings. Once your paperwork hits the system, the court will implement what's
called a stay. Basically, that means that all collection proceedings, including
collection phone calls and letters, repossessions and garnishments, must
immediately stop. The stay lasts during the entire bankruptcy process and after the
bankruptcy is complete. Thus, your creditors should not be contacting you about
any debts that were wiped out in your bankruptcy. If creditors are still contacting
you after you have filed or after your bankruptcy is completed, you should contact
your bankruptcy attorney immediately for help.
How to Qualify for Chapter 7
In order to qualify for Chapter 7 bankruptcy you must pass the “means test.”
The means test determines whether or not you make too much money according to
the new bankruptcy law to file a Chapter 7 bankruptcy. The bankruptcy court uses,and thus your bankruptcy attorney as well, a chart compiled by the Census Bureau and the IRS that shows the median income for the various household sizes and for each state. You can find this chart at the U.S. Justice Department’s website at www.justice.gov/ust/eo/bapcpa/20120501/meanstesting. And if you earn at or
above the median income for your household size for your state then you most
likely will not qualify to file a Chapter 7 bankruptcy.
Even if you fall below the median income for your household size for your
state, but if you have a $100 left over after you pay your monthly household
expenses like rent or a mortgage, your light bill and gas bill for example, then you
still won’t be able to file a Chapter 7 bankruptcy.
Call me today at 601-292-6981 to see if pass the means test. And remember, even if you don't pass the Chapter 7 means test, you can still file under Chapter 13 bankruptcy!
Paperwork and Documents You Need to File Bankruptcy
Once you begin to consider bankruptcy as a real option, it’s time to start gathering together the necessary paperwork and documents. I can help you get these sorted out, but in the interests of preparedness here are some of the items you will most likely need. Keep in mind that the requirements can change over time, but at the time of writing, these are current requirements.
Pay stubs from the past 6 months
In order to take the means test, you will need to provide proof of your income for the past 6 months. This can be in the form of pay stubs or a print out from your job showing what your gross pay and deductions for each pay periods for the past 6 months. You will also need to provide a list of monthly expenses. Keep in mind that some expenses may not be paid monthly, such as auto insurance or homeowner association fees. If you have recurring expenses that occur bi-monthly, bi-annually (every 6 months), or annually, break those down to figure out what the monthly charge equals and use that figure.
The last 2 years of tax returns for both federal and state taxes
This will act as further proof of your income for the bankruptcy court. The most recent tax returns will be submitted to the bankruptcy court.
You must provide credit reports from all three credit bureaus. I usually recommend www.annualcreditreport.com for my clients. That service allows you to receive a free credit report once a year. The purpose of the credit reports is to allow your bankruptcy attorney to list all your debts.
Bank statements for the past 3 months
If you have a checking or saving account, you must provide bank statements from all checking and savings accounts in order to help the court assess your financial situation. If you have not kept your bank statements, you can usually access them online, or ask the bank to reissue them to you.
Credit counseling report from an approved credit counselor agency
Under the 2005 bankruptcy reform law, bankruptcy filers are now required to go through credit counseling before they file. Once you complete the counseling, the agency in which you used to do the counseling will issue a certificate certifying that you complete the counseling for the bankruptcy court. The service is simple and easy.