Chapter 7 bankruptcy: Is it right for you?

Bankruptcy can offer debt relief and a fresh financial start for those who qualify.

Chapter 7 bankruptcy is designed to offer those who qualify with a fresh financial start. This form of bankruptcy is available to individuals, partnerships, corporations or other business entities. It takes three basic steps:

  • Qualification
  • Trustee's Meeting
  • Discharge of debts

For those that are considering moving forward with a petition for relief, it is wise to have a basic understanding of how these steps work.

Considering bankruptcy? The basics of the process.

Various criteria are required to qualify for relief through this form of bankruptcy. Individual petitioners, for example, with a current monthly income that exceeds the state median must pass a "means test." To pass the test, the individual must not have an aggregate monthly income over five years that is more than $12,475 or 25 percent of the debtor's nonpriority unsecured debt. Although this may seem like an easy test to apply, it is not. There are strict definitions for the terms "aggregate monthly income" and "nonpriority unsecured debt." There are also additional statutorily allowed expenses and circumstances that could justify additional adjustments to the income calculation once it is determined using these strict definitions. A special form is used to come to this determination, titled the Statement of Current Monthly Income and Means Test Calculation - For Use in Chapter 7 Official Bankruptcy Form B22A.

In addition to this form and others included in the petition, the petitioner filing for relief must also include various schedules of assets and liabilities, income and expenditures as well as a statement of financial affairs.

Once filed, an automatic stay takes effect. This stay requires creditors cease from attempting to collect from your payments. This means all calls, letters and other attempts to contact and demand payments are required to stop. Between the 21 st and 40 th day after filing the petition, a trustee meets with creditors and the petitioner. The trustee will make a decision on whether your case is a no asset case or whether he intends to sell assets. The majority of individual chapter 7 cases are no asset cases. This means the trustee files a report of no distribution and that he will not sell anything.

Considering bankruptcy? Weighing the pros and cons.

A successful bankruptcy petition will have a negative impact on one's credit score. However, it is important to note that this score is fluid. It is constantly changing. As a result, the petitioner can begin rebuilding his or her credit score immediately after the petition is approved. The score can be rebuilt in a number of ways, including paying bills like rent and utilities on time every month. Also, your credit may improve because you have less debts.

Considering bankruptcy? Importance of legal counsel.

These are just a few of the issues to be aware of if considering bankruptcy. Those who are considering moving forward with a petition for relief through bankruptcy are wise to seek the counsel of an experienced bankruptcy lawyer. This legal professional will discuss the process and go over the various requirements, advocating for your legal rights and working to better ensure a more favorable outcome. An experienced bankruptcy attorney can conduct the means test and make recommendations to you on your options and how to proceed.