What is a Chapter 7 Bankruptcy?

Chapter 7, also known as the Liquidation Bankruptcy, is the least complicated form of bankruptcy.  It may allow you relief from medical bills, credit card bills, and other types of debt.  The average length of a Chapter 7 is about six months.  At the end of those six months, if all goes well, many types of debt will be discharged, or released, giving you a fresh start.

Not all types of debt can be discharged.  Taxes, child support and alimony, judgments resulting from a DWI, and student loans will not be discharged.  You may have more income to pay these debts, however, if you are able to have other pressing debts released. 

Some people worry that they will have to give up property in a Chapter 7 bankruptcy.  While this can happen, in many cases arrangements can be made for you to affirm, or keep, property you are making payments on, such as a car loan. 

A Chapter 7 bankruptcy stays on your credit report for ten years.  A bankruptcy will definitely lower your credit score.  Given that most people that have to file bankruptcy already have lower credit scores due to things like late payments, repossessions, and other issues, the hit to your credit report may not be as bad as you think.   With proper planning, many people find that their scores rise significantly a few years after filing a bankruptcy.

Not all people can file a Chapter 7 bankruptcy.  In order to file, you must pass what is called a Means, or Income Test.  An attorney will determine your average monthly income for the past six months.  This will be weighed against your expenses.  Your average monthly income must be the same or less than the average median income for a household of your size in your state.

Many factors go into this test, including your income from work and other sources (not Social Security), how many dependents you have, and your household expenses.   Special circumstances, such as a family member with medical needs, will be considered.  Your attorney will conduct the means test, based on the information you have given him or her. 

If you own your own home, or make payments on a car or other property that you would like to keep, Chapter 13 may be a better chapter for you.  Chapter 13 will also allow you to make payments on taxes you owe, and make up payments on a mortgage, or car.  Consult with a bankruptcy attorney to see what method of repayment is right for you.

Don’t go into the bankruptcy process alone.  Let a caring, experienced bankruptcy attorney help you.  Call the Law Office of Rebecca Darchuk at (828) 505-1052,  or email her at darchuklaw@gmail.com for a free consultation.