Questions about chapter 7 bankruptcy?
Chapter 7 Bankruptcy Overview
Chapter 7 Bankruptcy is governed by Chapter 7 of the Bankruptcy Code. Chapter 7 Bankruptcy is also known as a liquidation bankruptcy because debtors must liquidate non-exempt assets. This means the non-exempt assets are sold by the Chapter 7 Trustee for the benefit of creditors.
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Three Quick Chapter 7 FAQ
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What is the means test?
In a chapter 7, the means test determines a Debtor’s eligibility to qualify for chapter 7 bankruptcy. Eligibility is based on median income compared to other families of the same household size in your county. If you don’t initially pass the means test; which is quite common, you may be allowed deductions. However, the United States Trustee (the component of the Department of Justice which oversees bankruptcy filings) carefully scrutinizes means test deductions, especially in chapter 7 cases. Because of this, it is important to consult with an attorney who has expertise in consumer bankruptcy law.
What are exemptions?
If property is exempt, you may keep the property even though you have filed bankruptcy. If property is non-exempt, the asset is to be turned over to the Trustee so that it can be liquidated for the benefit of your creditors. Fortunately, exemptions are generous, and most clients’ assets are fully exempt. Texas’ exemptions for instance, allow a Debtor to fully exempt their homestead; and Federal exemptions provide a generous wildcard exemption. However, exemption statutes cannot be mixed, and an otherwise exempt asset may be liquidated due to a paperwork mistake. Because of this, it is important to consult with a bankruptcy attorney.
Can small business owners file chapter 7?
Many business owners choose chapter 7. Moreover, if you are a consumer debtor and your debt is 51% business debt, you are exempt from the means test. This means if your net business income was over the median income, your income does not preclude you from filing chapter 7 bankruptcy. There are many variations of small business. Some small business owners may find one case, a personal case, takes care of their debts entirely. However, other small business owners may find they need multiple bankruptcy cases; a personal bankruptcy case and one or more chapter 7 business bankruptcy cases. A skilled bankruptcy attorney can help you determine what is best for your situation.
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