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The New Bankruptcy Laws
When someone first begins the process of trying to declare Chapter 7 bankruptcy , the first order of business (besides fulfilling a mandatory 90 minute credit counseling session) for a consumer is to determine their average income over the 6 months prior to the filing date and measuring that against the median income of the state in which they reside. If your income is above the median, you are required to answer a series of questions to determine your eligibility for Chapter 7. Assuming you are dealing with credit card debt, personal loans, and other consumer debt, if your monthly disposable income exceeds $182.50 after certain allowed deductions then you will likely be forced to file Chapter 13 bankruptcy. If your monthly disposable income is between $100 and $182.50 you will have to answer a series of other questions to determine whether you will qualify for Chapter 7.
What's Eligible?
Another important qualification for being able to discharge through Chapter 7 is your debts must be unsecured, consumer debts. The most common types of debts that are eligible to be eliminated in a Chapter 7 are credit cards, medical bills, collection accounts, payday loans, and deficiency balances from car repossessions . Student loans (federal and private), taxes, fines, child support, mortgages, auto loans are not able to be discharged by filing Chapter 7 bankruptcy.
How Does Chapter 7 Affect Your Credit Report?
Chapter 7 Bankruptcy is the worst possible mark that a consumer can have on their credit report, and it will be reported to the credit bureaus for at least 10 years. The effect on your credit score can be extremely negative, but the bad mark is neither permanent nor impossible to recover from. Chapter 13, on the other hand, also has a dramatically poor effect on your credit score, but since it is only reported for 7 years, the drop is not as severe. If you are concerned with your long-term credit, then it's likely that a debt consolidation option like credit counseling or even debt settlement (this also has a negative effect on your credit, but not as severe as Chapter 7 or Chapter 13 bankruptcy) may be a more appropriate solution.
The Process Of Filing
In most Chapter 7 proceedings a person only needs to appear for one meeting: the meeting of the creditors. Unless your debts are disputed as arising from fraudulent transactions like large cash advances, luxury purchases, or balance transfers, you will only need to attend one of these meetings. If this is the situation, one or more of your creditors may file a motion to dismiss or convert your chapter bankruptcy to another. (This is rare, however.)
Once your petition papers are filed and approved by the court, you may also be required to attend a formal discharge hearing (also unlikely unless you don't have an attorney who will attend this for you).
Will My Assets Be Protected?
How your assets will be treated depends on what state you live in and how much equity you have in the property. The set of laws that protect your assets in Chapter 7 are called bankruptcy exemptions, and they vary from state to state. Bankruptcy exemptions set a certain dollar amount limit on the amount of equity you can have in a specific asset. If you have more equity than what the prescribed exemption allows, the bankruptcy court may force you to sell it in order to pay off your creditors. For information about what is protected in your state, follow this link: Bankruptcy Information.
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