Chapter 7 – Bankruptcy

When a debtor has no option to repay his debts to the creditors/lenders and if the creditors suit a case against a debtor, definitely the debtor should go for chapter 7 bankruptcy. A chapter 7 bankruptcy is all about, a debtor can pay off his debts by selling all his/her assets under the supervision of the court or the court appointed trustee.

A debtor can file chapter 7 bankruptcy under the following situations given below:

• Debtor has nothing cash to pay off all the debts
• Creditor suit a case against debtor
• Some of accounts are still in collection

A debtor needs to qualify to apply for chapter 7 bankruptcy. He can not simply apply for chapter 7, there are certain criteria to be fulfilled in order to qualify for chapter 7 bankruptcy.

Means Test: If a debtor’s income is less than the median income in the specific state where he resides, he can be eligible to qualify for chapter 7.

Credit Counseling: The debtor has to go for credit counseling session within 6 months prior to the date of applying for it.

Prior Bankruptcy: A debtor who is applying for the chapter 7 should not be the person applied for the bankruptcy chapter 7 with in past 8 years till the date.

In chapter 7, a debtor needs to list out all his assets which can be sold out for the purpose of making payment to creditors. The court appointed trustee will decide which are the assets can be sold off to repay the debts. Properties like liquid assets, which are Cash, household items, life insurance proceeds, personal property or the property which own by the individual or with a co-owner.

There are certain exemptions provided by state as well as federal, state exemptions depend on state to state. There are some states which allow debtors to go with the federal exemptions or state exemptions for Chapter 7 bankruptcy at the same time some other states allow the debtors only to avail state exemptions. Any asset which exceeds the state or federal exemption can be utilized to pay off the debt. In case of a house, if there is no equity in the house, it can not be utilized to pay off the debts. In case of a car, if a debtor’s car has more equity as per the federal or state exemption, it can be sold out to pay off the car loan.