What Is Chapter 7 Bankruptcy?
Chapter 7 is the most common form of bankruptcy. It is usually the best option for individuals who do not have the ability to pay their existing debts. If you pass the means test and qualify for Chapter 7 bankruptcy, you can erase all eligible debt in 3-6 months. This is as opposed to re-organizing your debt in a Chapter 13, and repaying your debt over 3-5 years.
You may claim certain property exempt (that is, you can keep the property) and a trustee may take possession of the remaining assets in order to liquidate them and pay your creditors according to priorities set forth in the Bankruptcy Code. In most cases, you do not lose any property. See the United States Trustee’s Bankruptcy Information Sheet.
Do I Qualify? What Is the Means Test?
The means test determines whether your disposable income is low enough for you to qualify for Chapter 7 bankruptcy. It was designed to make sure that only people who are truly unable to pay their debts actually file.
Your income must be lower than the median in California for a household your size in order for you pass the test. If your income is too high, you can only file Chapter 13 bankruptcy, in which you have to make monthly payments over a three-to-five year period.
What Property Can I Keep?
In California, you get to keep almost all of your property. This includes your:
- retirement account
- other personal belongings
After valuing your assets, you can protect your assets by claiming the allotted exemptions. An experienced Chapter 7 bankruptcy attorney will advise you as to which assets are exempt in addition to how you can use to correct exemptions to protect your property.
Debts That Are Not Discharged
In California, non-dischargeable debts in Chapter 7 include:
- child support
- student loans
- income tax debts
Speak to a Chapter 7 bankruptcy attorney to see what other debts may not be discharged in your case, as well as what options are available to you.
What Happens to Your Credit After Filing Chapter 7 Bankruptcy?
After filing Chapter 7 bankruptcy, make sure that you monitor your credit reports. That way you can check that your creditors have updated their reports to reflect any discharged debts.
Rebuilding credit after bankruptcy is not as big of a problem as you might think. You should be able to get a credit card, as most credit lending companies know they’re not facing a risk (since you can’t file for a Chapter 7 twice in 8 years).
A good idea is to get a secured credit card. This will allow you to rebuild credit but without the temptation that comes with an unsecured credit card. If you need a new car, great – a car loan can be very useful in rebuilding credit after bankruptcy.
Speak to a Knowledgeable Chapter 7 Bankruptcy Attorney Today
Filing bankruptcy can be one of the most difficult decisions you face in your life. Don’t go through it alone. Chapter 7 bankruptcy lawyer Diane Anderson will analyze the facts of your case and advise you as to which option is best for your situation. If you have questions about bankruptcy, the means test, or how to rebuild credit after bankruptcy, call the Law Offices of Diane Anderson at (530) 626-6441 today.