One of the hardest things about filing bankruptcy is figuring out what chapter you should file under. You can file under either chapter 7 or chapter 13. Each chapter has its upsides and its downsides. Some people have heard a rumor that chapter 7 was abolished or that it’s hard to qualify for chapter 7; but, that’s not true. The only thing that has changed is how you qualify for a chapter 7 bankruptcy. I am an experienced Seattle – Kent bankruptcy lawyer and can guide you through the chapter 7 qualification process.
Most people file a chapter 7 bankruptcy, but I think that it is important for my clients to understand what they are choosing. A bankruptcy is a big step; and I want you to know what happens when you file and what you should expect.
Qualifying for Chapter 7 Bankruptcy
First, your lawyer needs to know if you have ever gotten a bankruptcy discharge before. If you got a chapter 7 discharge within the last 8 years or a chapter 13 discharge within the last 6 years, then you are not eligible for a chapter 7. You may still be eligible for a chapter 13.
Second, you lawyer has to run the chapter 7 means test. The chapter 7 means test looks at your average income from the last six months. If you have a below median income, then you automatically qualify for a chapter 7 bankruptcy. If you have an above median income, you may still qualify. Your bankruptcy lawyer has to run the secondary means test. If the secondary means test produces a negative number, then you qualify for chapter 7. If the secondary means test produces a positive number, then you are required to file a chapter 13 bankruptcy.
A word of caution about the means test: The means test numbers change from time to time. This means that trying to do the means test on your own or relying on an old means test is not going to work. You are better off talking to a qualified bankruptcy attorney. Most attorney’s offer free consultations – I do – so that you can verify your eligibility for chapter 7.
Benefits of Chapter 7 Bankruptcy
- You are done in about 90 days. Once your case is filed, you will get your chapter 7 discharge in about 90 days. It can sometimes take an extra week to actually get the discharge, because there are so many cases in the bankruptcy court right now, but you are entitled to your discharge on the 90th day.
- You do not have to pay any of the creditors on your petition ever again. You can choose to pay certain creditors, for instance your mortgage company if you are keeping your house.
- If you want to get rid of your house, but need time to move out; chapter 7 can give you extra time to live there rent free.
- The chapter 7 discharge gets rid of medical bills, credit card bills, deficiencies, stops lawsuits, stops collection actions, and discharges virtually all of your other debts.
- You can keep your car in a chapter 7.
- You can keep your house in a chapter 7
- It is very unlikely that you will lose any property in a chapter 7 bankruptcy.
Downsides to Chapter 7 Bankruptcy
Remember that most people file a chapter 7 bankruptcy, because it completely protects them and discharges all of their debts. In some cases, a chapter 7 might not be right for you; so it is important to talk to a qualified chapter 7 bankruptcy attorney.
- The vast majority of people will not lose any property in a chapter 7. If, however, you are in the small minority that has valuable property that cannot be exempted; the trustee could take it and sell it for the benefit of your unsecured creditors. A qualified bankruptcy lawyer can either restructure your exemptions to protect the property that you want or help you file a chapter 13 bankruptcy to discharge your debts and protect your property. For more information see the articles on bankruptcy exemptions and asset protection in bankruptcy.
- The chapter 7 discharge does not cover back taxes or unpaid traffic tickets. A chapter 13 lets you pay back traffic tickets and restore your driver’s license. A chapter 13 allows you to take care of back taxes ahead of all of your other creditors.
- You have to pay all of your attorney’s fees upfront in a chapter 7. If your bankruptcy lawyer is not paid in full before you file, then the unpaid balance gets discharged with all of your other debts. A chapter 13 bankruptcy can be filed for $0 upfront attorney’s fees.
Conclusion – Chapter 7 Bankruptcy Upsides and Downsides
Most people file a chapter 7 bankruptcy; and in most cases it is all that you need. This is great because you do not have to commit to a repayment plan; in fact, you do not have to repay a single unsecured creditor. If chapter 7 will not work for you, then you can still file a chapter 13 bankruptcy. Even though chapter 13 requires a repayment plan, after chapter 7 it is often the most affordable debt solution available. A consultation with a Seattle – Kent bankruptcy lawyer can help you better understand the process and which chapter is right for you.