Chapter 7 Bankruptcies

Chapter 7 Bankruptcies are a way to get a fresh start. However, under the new law passed a few years ago, you must meet certain criteria before you will be allowed to file for Chapter 7 Bankruptcy protection.

What are the different types of bankruptcies? There are typically two types that are allowed to individual consumers, Chapter 7 and Chapter 13. Under a Chapter 7 you are allowed to wipe out debt and under a Chapter 13 you work out a plan to repay all the back payments that you are in arrears. There is a procedure in place for individuals to find out which course they will be allowed to take.

First Step: Means Test

If you are an individual or family with consumer debts, you will first have to pass a means test, which simply compares your household income to the median (average) in the state where you live. The amount of income varies according to how many people live in the house. In Texas the median income for a household with 3 people is currently $57,053 (subject to change). So, in this example if you have a husband, wife and one child and the total gross amount of household income is less than $57,053, then you will be allowed to file a Chapter 7 Bankruptcy. If your household income is more than that number, you will have to pass the "means test" to see if you will have enough disposable income to repay the debts in a Chapter 13. The income varies according to the number of persons living in the house.

The Credit Counseling Requirement

There are also counseling requirements you must meet before you are allowed to file for Chapter 7. You must attend and receive a certificate of completion from a sanctioned credit counseling course. You will also be required to attend a second counseling course towards the end of your bankruptcy. Your lawyer can direct you to these classes.

What About Chapter 13?

In the event that you are not allowed to file for Chapter 7, then you may still qualify for relief under Chapter 13. This is where you and your lawyer devise a plan of repayment. You take the disposable income you have each month and tender to the court a plan of how you propose to repay the arrearages over time. You will come up with an acceptable amount each month that you will pay towards retiring that old debt until it is all paid.

Bankruptcy Protection

Bankruptcy protection is a very powerful tool that protects debtors from creditors. The automatic stay that goes into affect once the bankruptcy is filed stops most lawsuits in their tracks and basically moves everything into the bankruptcy court. For anyone to be able to move forward with a lawsuit or to take any action, they must secure permission from the bankruptcy court

For more information, please feel free to call for answers to your questions.

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