Benefits of Chapter 7 Bankruptcy
Filing for bankruptcy under Chapter 7 of the Bankruptcy Code is very appealing for many of those in need of bankruptcy protection.
Why? The benefits are great.
Why Chapter 7 is So Appealing to Many Bankruptcy Filers
- First, in Chapter 7, many unsecured debts are totally discharged. The debts are wiped out you never have to pay them back. For example, medical bills, personal loans, and credit card debts are all eliminated.
- Second, though there are limits on the assets you can protect, most Chapter 7 filers keep all of their assets. Each state has exemptions to protect your home and real property. In some states, you get to choose between your state's exemptions and federal exemptions.
- Third, a Chapter 7 discharge only takes about 6 months. On the other hand, a Chapter 13 discharge takes three to five years.
Means Test (Plus One More)
Chapter 7 bankruptcy protection was designed for "lower" income and low asset individuals (and married couples). Therefore, you need to qualify for Chapter 7 by meeting the "means test straight" or the "means test plus one more".
- You meet the "means test straight" if your income is equal to or less than the median income for your state. Friendly reminder (back to your middle school math days) that "median" means the middle number, not the average.
If your income exceeds the state median income, you may still qualify for Chapter 7:
- It's the income of the 6 months immediately prior to filing bankruptcy that counts. If you don't immediately qualify for Chapter 7, you may qualify by waiting a month or so before filing.
If you have excessive living expenses, you can make more than the state median and still qualify. Your disposable income will be measured.
This is what we call "means test plus one" because you have to take one more step past the straight means test to qualify.
For example, high medical expenses or vehicle expenses may allow you to qualify for Chapter 7 even though your income is higher than your state's median.
As a very rough estimate, if your income is up to 20% more than the state median income, you may still qualify to file under Chapter 7, using the "means test plus one strategy".
Example State Median Incomes
Absolutely be sure to consult with a bankruptcy attorney to determine the current median income for your own state and to determine whether you qualify for the "means test plus one" if you don't immediately qualify for the "means test straight".
But in the meantime, here are some example state median incomes, current as of May 2012.
- California: $49,188 (single person) to $77,167 (family of four)
- Florida: $42,053 (single person) to $64,722 (family of four)
- Illinois: $46,983 (single person) to $81,570 (family of four)
- New York: $47,381 (single person) to $83,775 (family of four)
- Pennsylvania: $46,515 (single person) to $79,102 (family of four)
WARNING: DO NOT ELIMINATE YOURSELF FROM FILING CHAPTER 7
This heading is in all capital letters because we really mean it and we desperately want to grab your attention. It's imperative that you consult with a bankruptcy attorney before you disqualify yourself from Chapter 7. The benefits are too great not to know the facts.
Determining whether you qualify for Chapter 7 under the means test straight and the means test plus one can be tricky. Don't count yourself out without asking a bankruptcy lawyer for guidance.
Where to Find a Bankruptcy Attorney
Our job at Attorneys.org is to help people like you find an attorney. We list attorneys who focus their practice on particular areas of law and you are free to contact them or not. It's totally up to you whether you consult with one of the attorneys list and, if you do, which attorney you choose.