When debt gets to the point of being overwhelming, filing for bankruptcy may be the answer. Contact Phoenix Law to learn more about your options.
Living in debt is stressful, especially when it gets to the point where your income is not enough to even cover minimum payments on what you owe. People fall into debt for a number of reasons, such as illness, divorce, overuse of credit cards, job loss, or loss of income after the death of a spouse. When debt gets to the point of being overwhelming, filing for bankruptcy may be the answer.
Difference Between Chapter 7 and Chapter 13
Individuals and married couples can file for either Chapter 7 bankruptcy or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, the majority of a person’s or couple’s debts is discharged and no repayment of the debts is required. When an individual or married couple files for Chapter 13 bankruptcy, he or she will be given protection from creditors for several years while paying off accumulated debts.
Qualifications for Chapter 7 Bankruptcy
Not all people can file for Chapter 7 bankruptcy. Since Chapter 7 bankruptcy discharges the majority of a person’s debt, this type of bankruptcy is reserved for people who do not have enough income to support the repayment of their debts over several years.
A person contemplating filing for bankruptcy will need to complete the Chapter 7 means test to see if he or she is eligible to file for Chapter 7. The first step is to determine if your income is above or below your state’s median income for your household size. If your income is below your state’s median income for your household size, you qualify to file for Chapter 7 bankruptcy.
If your income is above your state’s median for your household size, things become more complicated. You will need to calculate your allowed monthly expenses and then determine if you have enough disposable income left over to pay back debts through Chapter 13 bankruptcy.
Since the Chapter 7 means test can be complex if your income is above the state median, you should hire an experienced bankruptcy attorney to assist you.
Debts That Are Discharged Through Chapter 7 Bankruptcy
When your Chapter 7 bankruptcy is approved by a bankruptcy court, you can count on the majority of your debts being discharged. Dischargeable debts include credit card debt, medical bills, personal loans, and most judgments against you. In some situations, unpaid income taxes may also be discharged under Chapter 7 bankruptcy.
Most of the time, those who are approved for Chapter 7 bankruptcy will be able to keep their home and their car. Depending on what assets you own, you may have to sell some of them in order to pay off certain creditors. A bankruptcy attorney will help you know what to expect.
Debts That Continue to Exist After Chapter 7
While Chapter 7 bankruptcy allows most debts to be discharged, some forms of debts do not qualify under Chapter 7. In the vast majority of Chapter 7 bankruptcy cases, student loan debt, unpaid child support, unpaid spousal support, and debts ordered to be paid due to causing injury or death will not be discharged.
If you incur new debts shortly before filing for bankruptcy, they may not be discharged, even if your bankruptcy is approved by the court. For example, debt related to the purchase of luxury goods or services that was incurred within 90 days prior to filing for bankruptcy will not be discharged. Large cash advances taken out within 70 days prior to filing for Chapter 7 bankruptcy will not be discharged either.
If you are considering filing for bankruptcy, contact Phoenix Law to learn if Chapter 7 is the right option for your personal situation. We look forward to helping you.