Bankruptcy is the legal process by which an individual, company, or a municipality may have its debt discharged (or “forgiven”).  This FAQ sections answers many of the initial questions individuals have when they are first considering filing for bankruptcy.

 What is Chapter 7 Bankruptcy?

The U.S. laws that explain the provisions for filing bankruptcy are organized into chapters.  Chapter 7 of the U.S. bankruptcy code outlines the debt discharge provisions for eligible individuals and companies.  If a Chapter 7 bankruptcy filing is successful, much of the individual or company’s debt is discharged – essentially, they are left with a clean financial slate.

Who is Eligible to File a Chapter 7 Bankruptcy?

Chapter 7 is supposed to be reserved for only those who truly cannot pay their debts.  To guard against abuses of the Chapter 7 system, Congress created a test called “the means test” which helps determine whether an individual’s income to debt ratio is sufficiently low enough to warrant a Chapter 7 discharge.

It is important to note that only debtors with primarily consumer debts – not business debts – are required to pass the means test before initiating a Chapter 7 bankruptcy.

What Do I Need to Do to File a Chapter 7 Bankruptcy?

To file a Chapter 7 bankruptcy, the debtor must complete a petition that lists all of the debtor’s property, the debtor’s income and monthly bills, the debtor’s debts, and the debtor’s property that he/she sold, gave away, or traded during the two-year period immediately preceding the bankruptcy filing.

(Because the accurate preparation and completion of this petition critically affects the likelihood of success for the bankruptcy filing, it is highly recommended that potential debtors contact our office to discuss their case before initiating the petition.)

What Happens After My Bankruptcy is Approved?

At the conclusion of the process, the court discharges all of the debtor’s debts except for those which are exempt from the bankruptcy process such as child support and student loans.

How Does Filing a Chapter 7 Bankruptcy Affect my Credit?

 Of course, banks and other loan providers are not thrilled when they see a bankruptcy filing on an applicant’s credit report.  However, the extent of how filing bankruptcy will affect an individual’s credit largely depends on how good the person’s credit was before the filing.  If the debtor’s debt to income ratio was very high, the bankruptcy won’t likely affect the person’s credit very much.  Conversely, if the debtor’s credit was moderately good prior to the bankruptcy filing, then the debtor’s credit score will likely decrease.

Feel free to contact our office if you have questions on bankruptcy.  We look forward to helping you get a fresh start!