Chapter 7 bankruptcy is a process where, if the court grants relief, a petitioner's assets are sold off to satisfy their debts. This liquidation process is considered finished whenever there are no more non-essential assets to sell. Consequently, that means it may be possible to discharge significant debts for pennies on the dollar.
As any Chapter 7 bankruptcy attorney will tell you, though, judges don't take these decisions lightly. In order to qualify for relief, you have to show the court that your situation is so financially dire that there just isn't any other solution. Let's explore how you might qualify for Chapter 7 protection.
Showing Your Income and Financial Situation
The first threshold that has to be met is showing that your income is equal to or below the median income for your state. The median income level is the amount of annual income that half of a group makes more than and that half makes less than. If you've fallen on hard times, the court will look at your debts and incomes from the last 6 months in making this determination. Your Chapter 7 bankruptcy lawyer will usually refer to this process as "means testing."
If the court believes you still have the money and income needed to pay off your creditors, that's the end of the petition. You might still be able to pursue a restructuring of your debts under Chapter 13.
Faithful Representation of Circumstances
A major concern of the court is that you will be filing because you have no other serious way to get your financial life back in order. Misrepresentations are always ground for dismissal of bankruptcy cases, and deliberate attempts at trying to needlessly discharge debts can be construed as fraud subject to both civil and criminal penalties.
It's common for debtors who are filing for Chapter 7 to be ordered to take credit counseling classes. Failing to attend these classes will lead to the rejection of your petition. Filers must complete credit counseling with an agency approved by a Trustee of the court. Until then, a petition will not be considered.
Previous Discharges of Debt
The law requires some space between discharges of debts under bankruptcy laws. If you have had a debt discharged in the last 6 years under Chapter 13 or in the last 8 years under Chapter 7, you are ineligible to file for relief until that time has passed.
To learn more, contact a chapter 7 bankruptcy lawyer.