What is Chapter 7 Bankruptcy and Do I Qualify?

If your financial life has spun out of control, then filing for bankruptcy may be the best, most effective way to get back on track. My office has been helping families in Queens get out of debt for more than 30 years. Below, I’ve provided some basic information to help you determine whether bankruptcy is an option for you and if you qualify.

Chapter 7 bankruptcy, also known as straight bankruptcy, is the most common type of bankruptcy. It has helped countless individuals gain relief from overwhelming debt.

The entire process typically takes about 3 to 4 months; however, once someone files for Chapter 7 bankruptcy, they are protected from any collection attempts by their creditors. Some of the debts that can be relieved by filing Chapter 7 include:

  • Credit card debts.
  • Bank debts, such as loans and overdraft fees.
  • Medical bills, including hospital bills and dental bills.
  • Some taxes.

Even if your debts includes items not on this list, I may be able to help you. Court fines, child support payments, some tax debts and student loans are not commonly discharged by Chapter 7 bankruptcy proceedings; however, bankruptcy may still help.

How Do I Qualify?

Bankruptcy law changed in 2005. In order to ensure that only those who needed bankruptcy could file, the eligibility requirements became stricter. In Queens, you need to:

  • Complete an approved credit counseling class and a debtor education class
  • Supply pay stubs for the 6 months prior to the date of filing
  • Provide tax returns for 2 years if you were required to file returns
  • Pass the “Means Test,” which is a detailed budget analysis of your income and expenses

What Can I Keep?

You may worry about how bankruptcy will affect your possessions, believing everything will be “liquidated.” Fortunately, the law enables most people to keep all of your property.

If there are any “non-exempt” assets, a bankruptcy trustee sells them for cash and uses the proceeds to pay something to your creditors. However, most assets that most people have are exempt. In Queens, exempt assets include:

  • Up to $10,000 in bank account funds, cash, clothing and household items
  • Retirement plans, IRAs, 401(k)s and 403(b)s
  • Up to $3,000 in business-related tools (based on their current fair market value)
  • Your household goods and personal effects
  • Up to $4,000 in equity for a car (If you have a car with a loan, you can keep it so long as you continue to make the loan payments)
  • Up to $150,000 in equity of a residence
  • Up to $7,500 for a personal injury settlement

These values are determined for a single person. If you’re married and filing a joint Chapter 7 bankruptcy, then amounts are doubled. As you can see, this is a comprehensive list and for most people covers all of their assets.

I help my clients understand their eligibility and choose their exemptions strategically. Call (718) 544-0500 for a free initial consultation.

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