Bankruptcy: What You Need To Know About Chapter 7 Before You Close The Book On Your Debt

Law Articles

Chapter 7 bankruptcy is a filing option available for people who don't have the income to support a Chapter 13 repayment plan. If your debts have surpassed your ability to pay and you have no other alternatives, you may be able to qualify for a Chapter 7 bankruptcy filing. Before you file the paperwork, though, it's important to understand what Chapter 7 is and what the process entails.

Chapter 7 Basics

Chapter 7 bankruptcy is a liquidation process. During the filing, you will work with a bankruptcy trustee to evaluate all of your assets and your income to determine what can be liquidated to send to your creditors. Then, the trustee will handle all of the cash distribution. At the end of the liquidation process, your remaining balances on the debts included in the bankruptcy are eliminated.

What to Expect from Chapter 7

Before you file for Chapter 7, knowing what the process entails may help you prepare. Here's a look at a few things you need to know about filing for Chapter 7 bankruptcy.

Credit Counseling Requirement

When you file for Chapter 7, most courts will require you to complete a credit counseling program. During credit counseling, you'll learn how to budget, manage finances and live within the means of your income. If a counseling program is required by your courts, you'll need to go to an approved service. A bankruptcy attorney can not only help you find a service that the courts will accept but also tell you what timeframe you have to complete it in.

Means Testing

Since Chapter 7 bankruptcy involves liquidating assets and then eliminating outstanding debt, your income levels matter. The court paperwork will ask about your income levels, and you may have to complete a means test if your income is greater than the average income in your state. A means test evaluates your income over the last five years to be sure that you have a valid claim of bankruptcy. If your income levels have been higher than the court deems suitable for Chapter 7 bankruptcy, you may be required to file Chapter 13 and complete a repayment plan instead.

Timeframes and Deadlines

Filing for bankruptcy is a lengthy process that requires several court appearances, paperwork filing deadlines and time requirements for counseling and other steps. If you miss a deadline or a specific guideline, your bankruptcy case may be dismissed. If it is, you'll have to wait until the courts say you are eligible to file again. Depending on how long that is, you may have to take the credit counseling courses again. The best way to avoid this is to work with an attorney who can keep track of filing deadlines and notify you of court dates.

Tax Refund Issues

One of the most common questions asked before a Chapter 7 bankruptcy filing is what happens with your tax refunds. Tax refunds are typically considered as part of your assets when evaluating your bankruptcy estate for liquidation. Much of the decision rests with your bankruptcy trustee and is dependent on when you file the return.

Any unspent money from the previous year's tax return is an asset. That means it is included in the estate for liquidation. Any return you get the year that you file bankruptcy will be prorated based on your income. Only a portion of that return is included in the estate, so you'll be able to keep a portion of it. Once you reach the year after the bankruptcy, your tax return will be yours to keep.

Filing for bankruptcy is not a simple, straightforward process when there are so many other things to consider. With the information presented here and a competent lawyer from a site like, you can enter the bankruptcy process with a thorough understanding of what is ahead of you.


26 December 2014

Car Accident Clues

It can be hard to know what to do to protect yourself legally in the immediate aftermath of a car accident. You’re liable to be disoriented or in shock, you may be injured, and you’re surely worried about your passenger or the other driver. At least, that’s how I felt. The thing is, the things you say and do in the immediate aftermath of an accident may affect a legal case later. Depending on who’s at fault and what the laws are in your state, you may want to sue the other driver for damages, or you may find yourself being sued. My blog is designed to give you tips for a car accident lawsuit, no matter which side you find yourself on.