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Chapter 7

The Chapter 7 bankruptcy is the most common form of bankruptcy filed. It is commonly referred to as a "Wipe Out" or "Fresh Start." To determine eligibility for Chapter 7 bankruptcy, debtors go through a series of tests to demonstrate that they cannot afford to repay anything to their creditors. These tests include a Means Test which verifies how much money was made in the last 6 months, a Budget Analysis which determines what their income and expenses will be going forward, and finally, an Asset Analysis which determines if a debtor owns too much property. If the debtor fails the Means Test or Budget Analysis, they will be forced to repay what they can afford to their creditors in a Chapter 13 bankruptcy.
Chapter 7 bankruptcy will discharge or wipe out most unsecured debts. Some common examples of unsecured debts are utility bills, credit card statements, medical bills and payday or signature loans. However, there are some bills that cannot be wiped out in a Chapter 7 bankruptcy. For example, debts that are incurred through fraud, owed on certain income taxes, owed for child support or incurred as a result of an intoxicated use of a motor vehicle cannot be discharged or wiped out in a Chapter 7 bankruptcy. Also, if you have secured debt, meaning that a creditor has a lien on your property, and you want to keep your property, you will have to reaffirm or agree that such loans are unaffected by your Chapter 7 bankruptcy. Typical examples of secured debt are mortgages, car loans, title loans and financed furniture or electronics.