Financial Trouble? Chapter 7 Bankruptcy May Offer the Solution

When possible, debtors generally prefer to file Chapter 7 bankruptcy because it discharges most debts. To qualify, an income limitation needs to be met. For a single person, the median income in Florida is $40,766. For a family of four, it is $62,742.

Any debtor who meets this criterion can typically have most or all of their debts discharged in exchange for surrendering certain types of nonexempt property to the trustee to pay creditors. Although some property can be lost, Chapter 7 bankruptcy offers several advantages over Chapter 13.

A fresh start

The aim of Chapter 7 bankruptcy is to provide debtors with a new start. Certain debts are eliminated so they can rebuild their financial future and repair their credit rating. Some debts cannot be discharged, such as student loans (in most cases), child support, and alimony. Property liens, such as a mortgage or tax lien, remain in place after discharge, too.

Anyone can file

Any entity can petition for bankruptcy under Chapter 7. Only individuals are eligible for Chapter 13.

No debt limitations

Chapter 7 bankruptcy has no limits on the amount of debt someone may have. On the other hand, a debtor is ineligible for Chapter 13 if their secured or unsecured obligations exceed certain limits. ($336,900 for unsecured debt and $1,010,650 for secured.)

No repayment schedules

Under Chapter 7, a debtor is not bound to a court-approved repayment plan. Chapter 13 requires a three or five year debt repayment plan, and the debtor must prove that they have sufficient income to pay their creditors each month. Secured creditors and priority debts have to be repaid in full, and unsecured creditors must receive an amount equal to what they would have gotten if the debtor’s nonexempt property had been sold in Chapter 7.

Keep future income

In most instances, property that a debtor obtains or will obtain after filing is not included in the bankruptcy estate. The exceptions are certain property types acquired within 180 days after filing for Chapter 7, such as an inheritance, proceeds from a life insurance company, and death benefits.

Quicker discharge

In a typical case, a debtor can be discharged in as little as three months. After nonexempt property has been distributed by the trustee to unsecured creditors, the case will be closed by the bankruptcy court.

If you’ve got questions about Chapter 7 bankruptcy – or bankruptcy in general – we can help. Please give us a call today to learn more!