Some of our readers may know that there are two primary forms of bankruptcy for individual debtors: Chapter 7 and Chapter 13. Both forms of bankruptcy have their advantages and disadvantages, and it is important for debtors to work with an experienced attorney, first to determine whether or not bankruptcy is a good solution for their situation, and second, which form of bankruptcy they should pursue.
Chapter 7 bankruptcy offers some unique benefits to debtors that Chapter 13 does not. One of these advantages is that the process is rather quick, because there is no repayment plan as in Chapter 13 bankruptcy. Instead, Chapter 7 involves the liquidation of nonexempt assets and using the proceeds of those assets to pay off debtors. Often, the process takes less than six months to complete, though the timetable can vary.
Another advantage of Chapter 7 bankruptcy is that, because there is no repayment plan, it does not require a debtor to have a current income. For debtors who are not in a position with a steady income, this is essential.
Not everybody who applies for Chapter 7 bankruptcy is eligible for the process, though. There are certain rules laid out in the Bankruptcy Code as to who may go through the process. One important rule is that the debtor must be financially eligible. If the debtor’s currently monthly income is greater than the state median, the so-called “means test” is used to determine eligibility.
In our next post, we’ll take a look at the means test and how it is used to determine eligibility for Chapter 7 bankruptcy.