A decision to file for bankruptcy is one that’s usually not made without considerable thought. It’s often the result of a realization that there won’t ever be enough money to cover one’s debts unless something dramatic can be done.
Many consumers file for Chapter 7, which is known as the liquidation bankruptcy, or Chapter 13, which is known as the wage-earner’s bankruptcy. For people who are considering a Chapter 7 bankruptcy, understanding what this process entails is important.
Means test
In order to file for Chapter 7 bankruptcy, a filer has to pass the means test. This involves scrutinizing their income and family size to ensure they meet the requirement of not having an income that’s too high. This is because Chapter 7 filers don’t have to make payments on their qualifying debts.
Exempt versus non-exempt assets
Bankruptcy trustees have the right to liquidate non-exempt assets, but the chance of this happening isn’t very high. This is because most people who can pass the means test don’t have assets that are worth liquidating to pay debts. Also, many assets, such as retirement accounts, certain amounts of home equity, most personal property and specific government benefits, aren’t subjected to liquidation because they’re exempt.
Automatic stay
An automatic stay is issued when a person files for bankruptcy. This prevents creditors from trying to collect debts, which gives the filer a break from letters, phone calls and other collection methods. It also places all creditors on a level playing field so none of them can circumvent the bankruptcy process.
A person who’s filing for bankruptcy should ensure they understand their responsibilities, including the need to be forthcoming on bankruptcy documents. Other requirements, such as credit counseling and debtor education, are also concerns. Working with a legal representative who can assist them throughout the process is critical because there are so many points to consider during bankruptcy.
