apter 7 is the type of bankruptcy that eliminates most, but not all, of your debts. The most common types of debts that are not eliminated by Chapter 7 Bankruptcy are fines (such as parking tickets), child support payments, taxes (although some taxes may be eliminated), student loans (there is a rare exception for hardships cases), and secured debts that you wish to keep (most commonly car loans and mortgages).
To qualify for a Chapter 7 Bankruptcy, you must first pass the “Means Test,” which requires that your income not exceed a certain level. To take this test, first add up your income from the six previous complete months. Next, add up all of the income sources for your household, including yours and the income of the other members of your household over the same six month period. Certain types of income, such as social security, unemployment compensation, or welfare, should not to be included in your calculations. Then divide the total of these amounts by 6. Finally, multiply the resulting number by 12 to obtain your yearly income.
Once you have determined your yearly income, compare it to the median income for your state. These figures are updated at the beginning of every year. For 2009, the amounts in New York are as follows: The median income for a family of 1 is $46,523; for a family of 2 is $57,006; for a family of 3 is $67,991; and for a family of 4 is $83,036. For households larger than four, $6,900 is added for each additional family member. If your yearly income is less than the median income for your state, you will qualify for a Chapter 7 Bankruptcy. Click here to learn the current median income for your state:
For more information on what expenses you are allowed and average incomes for other states.
If your yearly income is less than the median income for your state, you will qualify for a Chapter 7 Bankruptcy.
If your median income exceeds the limit allowed in your state, all is not lost. There is a second step that allows you to deduct certain expenses from your income. If applying these additional deductions drops your net income to the amount allowed, you will have passed the “Means Test.” However, if you are still above the allowed income limit, you will have failed the “Means Test” and will not qualify for a Chapter 7 Bankruptcy. In that case, you will have to look to Chapter 13 for relief. Chapter 13 Bankruptcy will be explained in more detail below.
Assuming that you pass the “Means Test,” you must still pass the budget analysis. If your monthly income exceeds your monthly expenses by $100 or more, you will not qualify for Chapter 7 and must instead look to Chapter 13 for relief.
To file your bankruptcy, you must complete two classes, Credit Counseling and Personal Financial Management. Each class takes one to two hours to complete and is offered by court-approved organizations. Each class costs a modest fee of usually $50. The classes may be taken in person, on the telephone, or on the Internet. The Credit Counseling class must be taken within 180 days preceding the filing of your bankruptcy petition. The Financial Management class must be taken within 45 days after your first hearing. Note that, in the majority of cases, there is only one hearing.
- Click here to find an approved agency that provides credit counseling.
- Click here to find an approved agency that provides the Personal Financial Management course
When you file a Chapter 7 Bankruptcy the bankruptcy trustee may take your property and sell it to raise funds for your creditors. This sounds far harsher than the reality. Due to laws that exempt your property from the trustee and allow you to keep the property, in the vast majority of cases, there are no assets for the trustee to sell. The term “exemptions” refers to the types of property that you are allowed to keep when you file for Chapter 7 Bankruptcy. States have the option of either following the federal exemptions or their own. New York has elected to follow its own exemptions. The following are the more common exemptions allowed in New York:
- Cash up to $2,500, which includes money in your bank accounts and cash in your wallet. Tax refunds also fall within this category.
- Clothing and furnishings worth up to $2,500. The value that you are permitted to assign to these items is the current fair market value, the amount that a buyer would pay for each item on the open market. In most cases, $2,500 covers the value of these items.
- Retirement Plans and IRAs. Most retirement plans, such as 401(k), 403(b), and IRAs, are fully exempt.
- Tools of the trade worth up to $600. Again, the value given to each of these items is its current fair market value.
- Car with up to $2,400 in equity. For example, if you own a car worth $15,000 and have a secured loan of $13,000, you are allowed to keep the car, since you have only $2,000 in equity.
- Up to $50,000 of equity in a house, co-op, condo, or mobile home, provided that you live in the house, co-op, condo or mobile home. For example if the property is appraised for $750,000 and your have a mortgage for $700,000, you are allowed to keep the house, since you have only $50,000 in equity.
- Personal Injury Claim up to $7,500. If you have a claim arising out of another person’s negligence in the operation of an automobile, for example, or a defective condition that caused you to slip and fall, you are allowed to keep the first $7,500 received from such a claim. Your personal injury lawyer will also be permitted to receive his or her legal fee and expenses. If there is sufficient money left over, the bankruptcy trustee will receive a fee and pay your creditors, after which any money remaining will go to you.
If you are married and file a joint bankruptcy, you may double the amount of these exemptions. For example, if you own a house and you are both on the deed, you may claim a $100,000 exemption.
Procedure and Cost
During our free consultation, we will review your situation and advise you of your options and of our fees.
Our fee for a Chapter 7 Bankruptcy is usually between $1,050 and $1,500. The exact amount will depend upon the following factors: how much you owe, the types of debts, what type of property you have; if you wish to keep any of your debts (for example, a car loan or a mortgage); your income (whether you earn more than the median income); whether you are self-employed; and whether you are filing with your spouse. In addition to our legal fee, you will pay $299 for the court filing fee and $35 for a credit report (combined from all three major credit reporting agencies). In addition, you will pay $100 to the organization that provides the two classes that you are required to complete. At the end of our free consultation, you will know exactly how much the Chapter 7 Bankruptcy will cost.
If you wish to retain our office to represent you in a Chapter 7 Bankruptcy, you will sign a retainer agreement and pay $200 as a deposit, also known as a retainer fee. After your first payment, you must pay us at least $200 per month until the balance of our fee is paid in full. Once you have retained our law office, you may stop paying the bills you intend to eliminate in the bankruptcy. You may also tell your creditors that they must call us and to stop calling you.
When you have finished paying us, you will need to complete the Debtor Counseling class, which may be taken in person, over the telephone, or on the Internet. Once you have completed this class, we will prepare your bankruptcy petition and file it with the U.S. Bankruptcy Court. The moment we file your bankruptcy petition, an automatic stay will be issued that will stop your creditors from taking or continuing collection and legal actions against you. This means that, if your wages are being garnished or if one of your bank accounts has been frozen, the creditor must stop those actions. If any money is taken from you once we file your petition, the money must be returned to you.
After we file your petition, you will take your second class on Personal Financial Management. There will be a hearing about one month later which is known as a “Meeting of Creditors.”LexEditor This is a bit of a misnomer, since creditors rarely appear. At the hearing, you will be questioned by the bankruptcy trustee, who is a court-appointed attorney paid to handle your case. The bankruptcy trustee will question you regarding your assets and your debts. The questioning usually takes from 5 to 10 minutes. We will prepare you for the questions that will be asked and be at your side during the hearing. If the bankruptcy trustee is satisfied with your answers and has no further questions, he or she will “close” the meeting, and no further appearance will be needed. However, if the bankruptcy trustee has further questions that cannot be answered at that time, a second hearing will be scheduled to occur approximately two weeks later.
Approximately three months after the hearing, you will receive a discharge from the Bankruptcy Court. This document, along with your bankruptcy petition, will be proof that you are not responsible for your discharged debts.
If you obtain a discharge, you may not file another Chapter 7 Bankruptcy for a period of eight years from the date of your prior filing. However, you may file a Chapter 13 Bankruptcy four years after filing a Chapter 7 Bankruptcy, in which you received a discharge.
We are a federally designated Debt Relief Agency under the United States Bankruptcy Laws. We assist people with finding solutions to their debt problems, including, where appropriate, assisting them with filing bankruptcy.
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