Clearing Debt through Chapter 7 Bankruptcy

If you’re struggling with mounting debt, it can often feel like there is no way to get your finances back on track. Fortunately, a legal process exists that allows qualified individuals to eliminate some or all of their unsecured debts. This method, known as Chapter 7 bankruptcy, offers debtors a quick, effective method of wiping their financial slates clean.

Chapter 7 Eligibility

Chapter 7 bankruptcy is a process intended for use by individuals of limited means. Eligibility is determined via the application of what is known as a means test. The objective of this test is to determine whether a debtor’s income is low enough to file for Chapter 7. However, keep in mind that this test balances income against expenses, so a debtor can potentially earn a significant amount of monthly income and still qualify if his or her corresponding expenses are high enough.

The Chapter 7 Process

Chapter 7 bankruptcy allows debtors who pass the means test and have limited assets to discharge some or all of their unsecured debts. When a debt is discharged, the debtor is relieved from personal liability for the debt and the creditor owed the debt is barred from taking action to collect the amount owed. To put it simply, discharged debt is no longer legally required to be paid by the debtor. In a majority of Chapter 7 cases, the filer automatically receives a discharge at the conclusion of his or her case. The typical timeframe for debt to be discharged following the filing of a Chapter 7 petition is approximately 3-4 months.

While not all debts are dischargeable, the majority can typically be discharged barring extraordinary circumstances. Also, only debts accumulated prior to the date of filing for Chapter 7 may be discharged, meaning that new debts incurred following the initiation of bankruptcy proceedings must still be paid. Finally, although debtors are no longer liable for their discharged debts, liens that have not been made unenforceable in a Chapter 7 case remain effective. Therefore, secured creditors may still enforce such liens to recover the property secured by the same.

Typical Dischargeable Debts

Credit card debt is one of the most common dischargeable debts, but there are several other types of debt that Chapter 7 discharges. These debts include:

• Medical bills
• Payday loans
• Certain personal loans
• Collection agency accounts
• Past due utility bills
• Dishonored checks
• Certain auto accident claims
• Business debts
• Lease-related debts
• Certain civil judgments
• Certain attorney fees
• Certain charge accounts
• Social security overpayments
• Overpayment and loan assistance for veterans
• Debts associated with vehicle repossession

If your debt has gotten out of hand, please contact an attorney to discuss your situation. An experienced bankruptcy law attorney will keep you apprised of your rights while ensuring that you understand all of your debt relief options. Please contact us for a free consultation at (518) 462-5601.