Bankruptcy is an option for individuals and businesses that seek to eliminate parts of their debt. They do so to reduce financial burden under the protection of federal courts. You can choose to file for either a Chapter 7 to Chapter 13 bankruptcy. By filing for Chapter 13, you agree to provide the court with a repayment plan that can typically last up to five years. Chapter 7, on the other hand, forgives most unsecured debt such as credit card loans and medical bills. There are some things to keep in mind if you consider filing for Chapter 7.
You Must Pass the Means Test
In accordance with bankruptcy law White Plains NY, you must pass a means test to see if you’re qualified to file for Chapter 7. The first step determines to see if you earn a certain amount annually. There are some changes judges take into consideration, such as your current status as unemployed or as a recent hire who switched to a different company. You’ll need to show some recent documentation, such as receipts, to make your case for allowable expenses. Other income outside of that number is considered disposable. If you earn over a certain amount and want to retain specific assets such as your assets, you likely won’t be able to file for Chapter 7.
Your Debts Will Be Forgiven
The main principle behind Chapter 7 lies in debt forgiveness. Unfortunately, this also means that your assets become liquidated. Since you’re not placed in a repayment plan, creditors can take most of your assets away from you since they become a form of collateral. These assets can be classified as nonexempt property. Assets that aren’t liquidated are things generally considered necessary for everyday living. Since the point of bankruptcy law is to help people recover from insolvency, taking away necessities they need to live is counteractive to the creditor’s goals.
Knowing how Chapter 7 works is important if you’re suffering from seemingly irrecoverable hardship. While Chapter 13 is another option to consider, Chapter 7 is more ideal for those with a limited budget and low annual income.