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What Is A Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is often referred to as liquidation bankruptcy, however in most cases, in fact nearly all cases, no assets are ever liquidated. Chapter 7 bankruptcy is a process of discharging or eliminating all qualifying debts from the person filing bankruptcy so they do not owe those creditors money any longer. The most common types of debts eliminated through bankruptcy are credit cards, medical bills, personal loans, and judgments. Oftentimes, clients have a car that has been repossessed and they have a deficiency from that, or a deficiency from an apartment, an office, equipment lease or other type of lease. Chapter 7 is a way to completely eliminate that debt with no repayment plan as long as the individual qualifies for the Chapter 7.

The Criteria and Qualification For A Chapter 7 Bankruptcy

In order to qualify for the Chapter 7 bankruptcy, the individual must meet certain income requirements, which is evaluated by the Bankruptcy Court through their bankruptcy schedules. Essentially the individual filing bankruptcy must have necessary living expenses which completely offset their income so that no money is left over at the end of the month, which is referred to as “disposable income.” In most instances, individuals struggling financially do not have any difficulty qualifying for bankruptcy under on their schedules or the “Means Test.”

To summarize, in most cases, monthly take home income (after taxes) should be completely offset by necessary living expenses for the individual or spouses to qualify for a chapter 7 bankruptcy. Necessary living expenses include but are not limited to: rent or mortgage payment, food, gasoline, utilities, child care, medical, insurance, clothing, dry cleaning and all the other expenses which are necessary for a person or family to maintain a normal life.

Is It The Same Thing As A Means Test?

The means test is a process that the U.S. trustee and the court goes through to qualify someone for a Chapter 7. So, what I described for qualifying for a Chapter 7 is essentially the same thing as the means test, although not exactly the same. For the means test, there are certain limits on different categories of expenses, but for the most part, the process of analyzing an individual consumer’s income versus expenses is very similar as the process of evaluating someone for the means test. The means test is just for Chapter 7. There is a version of the means test for Chapter 13, but it is not anything like the means test for a Chapter 7. The means test for a Chapter 7 is really to qualify individuals for Chapter 7. The means test is actually fairly complicated.

It is not required, but it is helpful to have the computer software to analyze income and expenses for the means test, although someone could do it with an Excel spreadsheet. The process is typically done with a particular type of computer software, which attorneys purchase and pay for. An individual who is poking around on the internet to see if they qualify would probably have trouble finding a definitive answer on their own. The Courts have made it pretty complicated, that is why as a general matter, to just keep it simple, the idea for the means test is that monthly income must be offset by necessary monthly living expenses so that there is no disposable income left at the end of the month. However, the categories are pretty reasonable, so you do not have to live eating ramen and rice or anything like that, a family or individual can live a normal life and still qualify for a chapter 7 bankruptcy.

For more information on Chapter 7 Bankruptcy In California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (888) 728-0044 today.


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