Many people contemplating filing bankruptcy want to know about Chapter 7 bankruptcy. Chapter 7 bankruptcy, also known as straight bankruptcy or liquidation, allows people in debt to eliminate all allowable debt at once by liquidating (i.e., seizing and selling) the debtor’s nonexempt assets, with the proceeds from the liquidation being used to pay some or all of the debt owed to creditors. If you’re looking to file, continue reading and contact a dedicated Memphis, TN Chapter 7 bankruptcy lawyer from the Arnold Law Firm today.
Facing a seemingly impossible amount of debt with no way out? If so, our firm can help. Reach out to a dedicated Memphis, TN consumer bankruptcy lawyer from the Arnold Law Firm today to learn more about what we can do for you.
Debtors are required to pass a means test calculation to be eligible for a discharge of debt in a Chapter 7 bankruptcy. The means test adds an additional document that must be completed before a bankruptcy filing. The purpose of the means test is to determine whether you have sufficient income or resources to pay your debts. It uses a representative sample of your income which is compared to the median income for people who live in the same region.
In addition, the means test looks at your secured versus unsecured debt to get a better understanding of your ability to get out from under debt without the help of Chapter 7 bankruptcy. If the means test determines that you do have the ability to pay off your debts, your ability to file for Chapter 7 will be limited to specific circumstances. There may be other debt-relief options available to you, as well.
Chapter 7 bankruptcy is most often used to stop garnishment of wages or collection of debts or judgments. Generally, to stop foreclosures or prevent the repossession of a vehicle, Chapter 13 is the best option.
Exempt assets are certain types and dollar amounts of property that a debtor is allowed to keep, and they are protected from seizure in bankruptcy or to satisfy a judgment by federal or state statutes. For example, exemptions exist to protect certain retirement accounts, such as 401(k) plans.
At the successful completion of Chapter 7 bankruptcy, the debtor receives a “discharge.” The discharge prevents creditors from attempting to collect any debt against the debtor, personally, that arose prior to the filing of the bankruptcy. In essence, the discharge effectively wipes out debts. However, it is important to note that bankruptcy proceedings cannot eliminate all debts. For instance, some student loans, child support obligations, and certain tax debts are not dischargeable.
Below we have outlined answers to the essential questions many of our clients have about Chapter 7 bankruptcy. Of course, every case is different. For help determining what type of bankruptcy is the best option for your case, call our firm to schedule a consultation. That said, some of the most common questions we get about Chapter 7 bankruptcy in Memphis are as follows:
This type of bankruptcy eliminates debts through liquidation. This means your property and assets are sold to pay off creditors and any remaining debt is discharged. The primary benefit of Chapter 7 is that it eliminates all eligible debts at once. It does not necessarily mean losing all your assets, as certain dollar amounts of different categories of property can be claimed as “exempt,” meaning they are safe from being seized and sold to pay creditors.
We understand how stressful and disruptive it is to have creditors constantly calling. Filing for bankruptcy stops these calls, immediately. Even if you do not qualify for Chapter 7, there are restrictions on when and how many times a day a creditor can call. An experienced bankruptcy attorney can help you stand up to creditors who are not following the rules.
No. Certain types of property are protected from being sold in bankruptcy. This typically includes your residence, car, and certain personal property, although there are dollar amount limits on the assets that are protected. You can also keep your 401(k) and other retirement accounts. In most Chapter 7 cases we file, our clients are able to claim all their property as “exempt.”
In the past, student loans were generally not dischargeable in bankruptcy. However, a 2022 change in the law has made it easier than ever for people to discharge their student loans through bankruptcy. If you’re interested in doing so, speak with a competent Chapter 7 bankruptcy lawyer from our legal team today.
If you file for Chapter 7 bankruptcy, you must pass a “means” test that examines your ability to pay your debts based on your income over the past six months. It also compares your income with the median income where you live. If your income is greater than a certain amount (which varies depending on several factors, including how many dependents you have), you may have “disposable income” that renders you ineligible for a Chapter 7 case.
When the means test calculates your income, it includes:
If you own a business, the means test also includes gross income from that business.
It is sometimes possible to redeem your vehicle, which is essentially a forced refinancing of your car loan through a third-party lender. There are limitations on the redemption process, and Chapter 7 is more often used to prevent civil judgments, wage garnishment and debt collection, including calls from collectors. If you want to protect your vehicle from repossession, Chapter 13 bankruptcy may be a better option for you.
If you discharged debt through this type of bankruptcy in the past eight years, you cannot file again until the time limitation ends. However, you may still be able to get relief from creditors through a Chapter 13 case.
No. Child support is considered a “priority debt” which means it cannot be discharged in bankruptcy. Your ex will still be required to pay child support, even if he or she is successful in eliminating other debts through Chapter 7.
If you are struggling with unmanageable debt and need help, we are pleased to offer a consultation with an experienced attorney. Our attorneys will answer your questions regarding your financial issues and concerns, and they will develop personalized solutions for your financial problems, including determining whether Chapter 7 bankruptcy is right for you. Your initial office visit with one of our bankruptcy attorneys is free. Contact the Arnold Law Firm today.