How Do You Qualify For Bankruptcy Chapter 7?

Chapter 7 bankruptcy is one of the fastest and quickest ways to pay off your loans. This bankruptcy is also known as “liquidation bankruptcy”. According to the U.S. Bankruptcy Court for the Central District of California, there is a continuous increase in chapter 7 bankruptcy cases.

Chapter 7 bankruptcy (debt-forgiveness) is worth filing if you want to shut down your business operations and are willing to get over your financial debts in 4-6 months. Most bills like credit card debt, medical bills, and personal loans are legally discharged by a bankruptcy court.

However, there are certain eligibility criteria for filing bankruptcy under chapter 7. Here in this post, we are discussing Chapter 7 bankruptcy eligibility norms and the details that will help you know the process of filing Chapter 7 bankruptcy.

What Is Chapter 7 Bankruptcy?

The process of Chapter 7 begins with the sale of all non-essential possessions. The money is distributed among your creditors. Getting a discharge from debts is the key to starting your business from scratch with chapter 7 bankruptcy.

This bankruptcy allows debtors to wipe away unsecured debts. However, there are certain exceptions like student loans, child support, alimony, and tax debt.

Having a chapter 7 bankruptcy will remain on your credit report for ten years - it is one of its major disadvantages, otherwise, it lets you free almost all your debts. A bad credit report will reduce your loan approval chances. If you do get one, the interest rate will be higher than normal.

Here’s a list of debts that are typically covered in a Chapter 7 bankruptcy:

• Medical bills
• Credit card bills
• Utility bills
• Personal loans
• Some government bills

Also read: Choosing The Right Bankruptcy: A Guide To The Different Types

When to File Chapter 7 Bankruptcy?

As mentioned above, chapter 7 bankruptcy will generate a bad credit score affecting your business reputation. Therefore, deciding on filing the case with chapter 7 is crucial. If the debtor is ready to close all business operations then it is the right kind of bankruptcy.

However, some of the conditions which enforce chapter7 bankruptcy are:

• You are unable to negotiate with creditors and do not agree on a contract.
• Even after credit counseling, you haven’t reached a plan to pay debts
• You are unable to pay debts in a time of 5 years or so
• More than 40% of your income is taken up by problem debts like credit cards, personal loans, and medical bills.
• When the next collection agency representative calls, you feel tempted to maim him.

Eligibility for Chapter 7 Bankruptcy

Chapter 7 bankruptcy follows strict rules. In case of dire financial straits, Chapter 7 might not be the right choice for you. Applicants must make sure that the court approves the filing case.

The eligibility criteria set for chapter 7 bankruptcy include:

• You or your business associates must not have filed for chapter 7 bankruptcy in the last eight years.
• The applicant must not have filed for chapter 13 bankruptcy within the previous six years.
• If your case was dismissed then you must wait for 181 days before making another attempt to file under chapter7.

• The applicant must be ready for financial scrutiny. The median income check is a must to qualify before filing the case. Those who don’t pass the mean test can file for chapter 13 bankruptcy.
• The debtors must include the tax return or transcripts details of the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). 11 U.S.C. § 521.

Keep in mind, you can qualify for Chapter 7 if you need to file a strong case. You can take the help of Chapter 7 bankruptcy attorneys to get more detailed information and reduce the chances of Chapter 7 Bankruptcy denials.

How to calculate your income for the Chapter 7 means test?

According to the Bankruptcy Code, the bankruptcy means test is a calculation of your business's median income. The median income is calculated as part of the Chapter 7 income limits.

You are required to pass the means test only if you are filing consumer bankruptcy. In case of business bankruptcy, you don’t need to pass the means test. Business debts include pending payments such as business loans, trade debt, or student loan debt.

Passing the means test is the starting point to go forward with Chapter 7 consumer bankruptcy before your unsecured debt is discharged.

The next step is documenting income and expenses through the Schedule I and J forms, official Form 106I and 106J. Schedule I form furnishes the details of money and Schedule J form is a listing of monthly expenses.

The court is also going to consider this information to calculate total debts. If the court thinks that you can pay the amount, your case might get converted to chapter 13 bankruptcy.

Does your income median allow you to file Chapter 7 Bankruptcy?

Debtors who earn more than the median income cannot qualify for bankruptcy. However, there is always a second chance to get your income evaluated.

The U.S. Trustee Program website has the details where you can check the means test expenses list that allow you to deduct the national or local standard living allowance and finally prepare a list of assets to get the maximum discharge.

After the deduction of all expenses from your income, if the disposable income is less, you can receive a bankruptcy discharge in Chapter 7 bankruptcy. If your expenses are less than your net income, Chapter 7 will not be a good choice. You will arrive at a state of "presumption of abuse" which means you have the funds to pay your creditors.

What You Must Avoid Before Filing Chapter 7 Bankruptcy?

Bankruptcy courts investigate records of your business transactions for the last two years. and at the same time, chapter 7 bankruptcy will affect your credit score for the next 10 years.

Therefore, to avoid conflicts, you should avoid making the following mistakes before filing bankruptcy:

• Don’t transfer assets. Moving assets out of your name will not protect you from the reach of bankruptcy court. Despite being innocent, these transfers could cause you to commit bankruptcy fraud.
• Avoid exceeding credit card limits and making large purchases. If you are undergoing business losses then it is better to avoid credit card purchases.
• Take care of credit and debit into your bank account. Too many transactions might put you in trouble.

How Does Chapter 7 Bankruptcy Work?

Chapter 7 bankruptcy can get complicated therefore, you must seriously consider hiring a bankruptcy attorney in Los Angeles that has extensive experience in getting a heavy bankruptcy chapter 7 order of discharge.

The bankruptcy attorney will pay attention to details and look into the gray areas of your case before filing a case.

Some of the dischargeable debts under Chapter 7 include:

• Credit card balances (including overdue and late fees)
• Collection agency accounts
• Medical bills
• Personal and payday loans (unsecured)
• Mortgage or automobile loans for which you are unable to pay (but creditors can reclaim the house or vehicle)
• HOA fees (if you surrender the home or condo)
• Utility bills
• Civil court judgments (not based on fraud)
• Social Security overpayments
• Veterans’ assistance loans and overpayments

Chapter 7 bankruptcy does not discharge the following debts:

• Child support
• Alimony
• Student loans
• HOA fees (if you keep the home or condo)
• Personal injury debts owed resulting from an event while you were intoxicated
• Unsecured debts intentionally unaccounted for in your filing
• Secured debts

A bankruptcy filing generates the need to create several documents. The bankruptcy court furnishes the details of the petitioners and the details are published online and in newspapers.

Getting the Chapter 7 bankruptcy approved itself is a big achievement in which many attorneys fail. As per the United States Code, you need to fill out a series of forms, records, liabilities, income, expenses, and overall financial standing while filing under chapter 7.

If your business complexity is more, then pre-bankruptcy credit counseling ($20-$100) becomes a must-do activity for you. A well-structured bankruptcy filing by an experienced bankruptcy attorney can get you maximum debt relief.

What to Do After Chapter 7 Bankruptcy

Bankruptcy leads to a fresh start of business from scratch. A post-bankruptcy restart of your business will involve careful (and realistic) budgeting, prudent spending, diligent earning, and investing, and keeping your accounts updated for better financial planning.

If you need help to do this, you can consult a credit counseling agency. You can ask for free, no-obligation assistance from professionally certified counselors.

Balanced financial management for the next few years will decide the future of your business. Once paying bills on time becomes a habit, you can gain a secure position avoiding the state of bankruptcy in the future.

How to choose a Chapter 7 bankruptcy attorney in Los Angeles?

To get your finances intact, you file for bankruptcy. The process involves legal matters and paper documentation of financial reports. You need a bankruptcy attorney’s help. But choosing the right attorney is also crucial.

Here are some tips to help you choose a Chapter 7 bankruptcy attorney:

• Consider consulting with an attorney for guidance on the type of bankruptcy that is right for you
• Does the attorney has won the similar type of cases?
• Prefer a team from a reputed law agency rather than hiring an individual attorney
• Will the law firm is efficient to prepare financial reports or not?

Overall, a bankruptcy attorney must be able to steer you in the right legal direction so that you can overcome the bankruptcy situation.

Conclusion:

In conclusion, qualifying for Chapter 7 bankruptcy requires meeting certain criteria, such as passing the means test, having predominantly consumer debts, and having limited income and assets.

While filing for bankruptcy can seem overwhelming, seeking guidance from experienced bankruptcy attorneys can help simplify the process and ensure that you take the necessary steps to obtain debt relief.

If you are considering filing for Chapter 7 bankruptcy, it is recommended to consult a qualified bankruptcy attorney who can help you understand your legal options and guide you through the process.