A chapter 7 is often called a liquidation bankruptcy. In fact, most cases have no assets to be liquidated because the bankruptcy code was written to provide a “fresh start.” A chapter 7 has no debt limits no ceiling and no floor.
If you cannot afford to meet your monthly living expenses and pay your debts, you may be able to discharge or wipe out your debt. Not everyone will qualify to file Chapter 7 under the Bankruptcy Code’s “means test” and certain types of debt cannot be discharged (such as most federally guaranteed student loans, many taxes and any outstanding family support obligations). There are also limits on how much you can earn and still be eligible to file.
At its simplest, the means test is based on the average California median income according to family size. For a single person, it is $62,938 a year and it goes up as family size increases. See the United States Department of Justice Census Bureau Median Family Income.
There is a long form of the means test that factors in secured debt payments such as your mortgage and other necessary expenses like medical bills and insurance. This is a complex form best undertaken by a local knowledgeable bankruptcy attorney. Completion of the long form will let you know if you pass the means test even though you have above median income.
You can keep retirement accounts, furniture, clothing, cemetery plots, a car. There are many items protected by the law or exempt from creditors that you can keep. Since January 1, 2021 the exemption amount for a residence has increased which means more homeowners are now eligible for bankruptcy assistance.
The debt liquidation is called a discharge. You cannot get a Chapter 7 discharge of your debts more often than every eight years. Only individuals obtain a discharge of their debts. If a corporation or partnership files for Chapter 7 relief the entity is dissolved.
If a chapter 7 does not appear to fit your situation, then you may have an additional bankruptcy option which is called, Chapter 13. Please visit this link for more information about Chapter 13.
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