Chapter 7 Bankruptcy

This type of Bankruptcy contemplates an orderly, court-supervised procedure by which a trustee administers the assets of the Debtor’s estate. The Trustees role is to liquidate Debtors non-exempt assets reduce them to cash, and make distributions to creditors, subject to the Debtor’s right to retain certain exempt property and the rights of secured creditors.

In most Chapter 7 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 (credit cards, medical bills, foreclosure sale deficiencies, and various other debts). The debtor normally receives a discharge approximately three and half months after the petition is filed. In Chapter 7 cases there is no repayment required for most unsecured debts, your debts are wiped out completely and permanently.

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 Debtors request for a Chapter 7 relief. The “Means Test” has two stages:

  • First Stage. A calculation is made to determine if the monthly average of Debtors last 6 months gross income is below the median income for Debtors state, if it is – then there is no presumption of abuse.
  • Second Stage. If Debtors income is higher than 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.

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 This presumption can be overcome by establishing to the Court that changed circumstances exist that warranted the filing of the Chapter 7 case.

For more information or for help in determining whether you satisfy the Means Test, contact our office to speak with an attorney.