While filing bankruptcy should always be a last resort, it can sometimes be the best option to help you get your finances under control. If you have been researching bankruptcy, you have likely discovered that chapter 7 bankruptcy is the most common type filed by consumers. Here is an overview of chapter 7 bankruptcy to help you determine if this is the best financial decision for you.
Will You Lose Personal Property?
Chapter 7 bankruptcy operates on two simple rules: the debtor is freed from all legal obligations to pay dischargeable debts, and creditors are granted the right to sell the debtor's non-exempt property.
A bankruptcy trustee will be appointed to your case by the court to determine if you have non-exempt property that can be sold to cover your debts. Many people who file chapter 7 bankruptcy do not have extra vehicles or other non-exempt items that the trustee considers valuable enough to sell, so they are able to keep all of their personal belongings.
Examples of properties that are normally exempt include necessities such as clothing, furniture, large appliances, and your vehicle if it is the only one you own. Additionally, creditors will not be able to dip into public benefits such as welfare or Social Security, and your life insurance is protected up to a point.
A two-part test known as the means test is used to determine if a consumer qualifies for chapter 7 bankruptcy. In the first stage, the gross income for your household is calculated for the past 6 months. It is then compared to the median income for households of the same size in your state. If your household income is lower than the median, you automatically qualify and do not have to complete the rest of the test.
If your gross household income is above the median in your state, the second part of the means test analyzes your disposable income. This amount is found by subtracting your monthly expenses from your gross income. If the test determines that you do not have enough disposable income to pay a sufficient portion of your debts, you will qualify for chapter 7 bankruptcy.
If you are faced with overwhelming debt, filing for chapter 7 bankruptcy can provide the solution you need with low risk of losing personal property. Be sure to enlist the service of a bankruptcy attorney when you file to help you navigate the paperwork involved with the process and provide professional representation during court proceedings.