It's usually unclear to people exactly what options are open to them when they are considering Chapter 7 bankruptcy, which is why a little Chapter 7 bankruptcy information can go a long way. The economy has been very tough on a lot of Americans lately, and the recent changes to bankruptcy laws in 2005 has left many wondering exactly what Chapter 7 means. Chapter 7 is, if a filing is successful, the best way to get clear your debt. Please keep in mind though, that any decisions about the matter should be made in consultation with a bankruptcy lawyer.
Chapter 7 Bankruptcy is the complete liquidation of all property not subject to a list of State-determined or federally determined exemptions. This property is sold to reimburse, in part at least, the creditors that the debtor owes money to. There is no repayment plan under Chapter 7; the debts are simply discharged. Applying for this type of bankruptcy is the equivalent of a fresh start, debt-wise.
It doesn't matter how much a creditor is owed by a debtor or even whether the creditor can pay the debt back over an extended period of time. So long as the debtor has applied for counseling from an approved credit or financial service 180 days prior to their filing for Chapter 7 and hasn't been disrespectful of the courts proceedings in that same period, any corporation, individual, or partnership can apply for Chapter 7.
Of course, the court system isn't about to let someone clear their debts if they are clearly capable of paying them but refusing to do so. Thus, the federal government developed a 'means test' to figure out whether or not someone is trying to abuse the system with his or her petition.
The first part of the test depends on how much an individual has earned monthly over the past five years in comparison to the median income of the state they've resided in during that period. Unsecured debt, or debt that isn't secured by some form of collateral, is key to understanding the second part. Usually, credit card debt is unsecured debt. Your expenses cannot go beyond twenty-five percent of their unsecured debt. Otherwise, the court perceives that the debtor is filing an abusive claim. At that point, the debtor will either have his case dismissed or have to file for Chapter 13.
A Chapter 13 claim is very different from a chapter 7 claim. Under Chapter 13, a debtor placed under a five-year repayment plan to his creditors. The amount left over after that period is dismissed under Chapter 7, and no property is liquidated.
Microscopic is exempted during the Chapter 7 process, so debtors who want to keep their house and motor vehicle, amongst other things, should probably not file for Chapter 7. Also, if the debtor owns a business and wishes to keep it going, they should probably seek alternative means of declaring bankruptcy. One alternative is settling with debtors outside of the court system and finding a payment plan through negotiation.
Whatever a debtor ultimately decides to do, with the Chapter 7 bankruptcy information that is evident, their finances are going to be critiqued heavily. The court system, including Chapter 7 filings, is only meant to benefit trustworthy debtors who want a fresh start.