If you are unable to pay your debts, you may be able to get a fresh start. A bankruptcy is essentially a request that the court wipe out your debts. But in exchange, you will be giving up certain possessions. There are different types of bankruptcy, and your rights differ with each type. For example, under a Chapter 7 bankruptcy, you may have to give up certain assets if you are unable to continue making payments. Under a Chapter 7 filing, your bankruptcy trustee can sell nonexempt property. While this is one of the drawbacks of Chapter 7, the principal benefit is most debts will be discharged, so that you will quickly find yourself with a (mostly) clean slate.
Bankruptcy (whether Chapter 7 or 13) does not wipe out all debts. You will still have to pay off your student loans, any money owed for child support or alimony, any fines or penalties for violating the law (such as traffic tickets, DUI, or criminal restitution), as well as recent income taxes and other non-dischargeable debts.
A Chapter 7 bankruptcy filing is sometimes called a “liquidation action”. Under current law (BAPCPA) enacted in 2005, a debtor must meet certain requirements to be permitted to file a Chapter 7 bankruptcy petition. A debtor is now required to go through a means test that will determine how much monthly discretionary income is available to pay off his or her debts. If the income is above statutory limits, the debtor will not be permitted to file a Chapter 7 petition but he or she may be eligible to file a Chapter 13 petition. If the debtor is permitted to file a Chapter 7 petition, then all assets will be placed into the bankruptcy estate for valuation. Certain assets may be excluded from the estate pursuant to exemption allowances. Once the assets in the estate are valued, they will be sold to pay creditors. Any remaining debts not paid by the sale may be discharged permanently, leaving the debtor free and clear for a fresh start.
As discussed above, the means test is now the standard to determine whether or not a debtor may file for Chapter 7 bankruptcy protection. Means testing arises out of the 2005 BAPCPA legislation passed by Congress. BAPCPA was written into law in order to prevent abuse of the benefits of Chapter 7 bankruptcy. The automatic stay and subsequent discharge of debt are very desirable because it gives a debtor a true fresh start. The means test takes into account a debtor’s monthly income. If the debtor’s income is higher than his or her home state’s median income, a presumption of abuse arises and a means test must be calculated. The means test determines how much monthly income a debtor actually has to pay off debts. If over the allowable statutory amount of monthly discretionary income, then the debtor will not be permitted to file for a Chapter 7 bankruptcy but still has the option to file for a Chapter 13 bankruptcy.
If you are unsure whether or not you are eligible for a Chapter 7 bankruptcy filing, call Villani & DeLuca, P.C. today at 732-965-3350 for a free initial consultation. Villani & DeLuca Of Counsel attorney Robert H. Johnson, Esq. will help you formulate a plan to return to good financial health.
Attorney Robert H. Johnson is Board Certified as a Consumer Law Bankruptcy Attorney. He is the founder of The Bankruptcy Law Group in Cherry Hill. Mr. Johnson will analyze your case and discuss the various options available, explaining both the benefits and potential consequences of a Chapter 7 bankruptcy. If you feel like you are drowning in debt, don’t wait any longer. In as little as a few months, you can have a fresh start.