Chapter 7 Bankruptcy contemplates an orderly, court-supervised procedure by which a trustee administers the assets of the debtor’s estate. The Trustee’s role is to liquidate a debtor’s non-exempt assets, reduce them to cash, and make distributions to creditors. This is subject to the debtor’s right to retain certain exempt property and the rights of secured creditors.
In most Chapter 7 bankruptcy cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. This may include credit cards, medical bills, and various other debts. Additionally, this may include foreclosure sale deficiencies. After that, the debtor normally receives a discharge approximately three and half months after the petition is filed. Importantly, in Chapter 7 bankruptcy cases there is no repayment required for most unsecured debts because your debts are wiped out completely and permanently.
Chapter 7 Bankruptcy Stages
The 2005 amendments to the Bankruptcy Code require the application of a “Means Test” to determine whether individual consumer debtors qualify for relief under Chapter 7. The purpose of the means test is to determine whether there is a “Presumption of Abuse” in a debtor’s request for Chapter 7 relief. The “Means Test” has two stages:
- First Stage. First, a calculation is made to determine if the monthly average of the debtors last 6 months gross income is below the median income for the debtor’s state. If it is, then there is no presumption of abuse.
- Second Stage. If the debtors income is higher than the debtor state’s median income, additional calculations (pursuant to IRS guidelines) must be performed. We will be able to expertly make these rather complex calculations and advise on allowable expenses based on the most recent court decisions.
Chapter 13 Presumption of Abuse
If a debtor fails to pass the Means Test, there is a presumption that the debtor should not be entitled to relief under Chapter 7 of the Bankruptcy Code. However, this presumption can be overcome by establishing to the Court that changed circumstances exist which warranted the filing of the Chapter 7 case.
Take the Next Step
For more information or for help in determining whether you satisfy the Means Test, contact our office to speak with an attorney. Because all situations are different, we can help explain what your best options are. Additionally, if you are looking for more information, these links may be helpful:
Find out about filing Chapter 7 Bankruptcy in Michigan
If you would like more information about filing for chapter 7 bankruptcy please contact us. We can help you determine if chapter 7 bankruptcy is your best option.