If you are dealing with overwhelming debt, you may be thinking about filing for bankruptcy. Chapter 7 bankruptcy is one of the most common types of consumer bankruptcy. It is a legal process that clears some or all debts that you owe.
The core advantage of declaring bankruptcy under Chapter 7 is getting a fresh financial start. But it also comes with consequences that are important to consider. Here is some information to help you determine whether Chapter 7 is right for you.
Does Chapter 7 make sense for you?
Chapter 7 may be a good choice if these facts describe your circumstances:
- Your debt is equal to at least 40% of your yearly income
- You do not have many assets
- Your debts are dischargeable, i.e., credit card debt, medical bills and personal loans
Not all debts are forgivable under Chapter 7. The process usually cannot clear student loans and child support. But if erasing other types of debt can free up enough cash to pay off these other debts, bankruptcy can still help.
How do you qualify?
First, you must not have any Chapter 7 bankruptcies in the last eight years or Chapter 13 bankruptcies in the last six years. Additionally, you must not have any dismissals of a bankruptcy petition in the last 180 days because of a failure to comply with court orders or appear in court.
If you are clear of these circumstances, you must pass a means test in order to determine your eligibility for Chapter 7. The test analyzes your income, expenses and assets. A core aspect of the means test checks whether your income is lower than the median income of Colorado households. The test looks at your income over the last six months.
How do you file for Chapter 7?
Beginning the Chapter 7 process involves undergoing credit counseling, receiving legal advice and filing paperwork. Most Chapter 7 cases take a few months to complete.