Chapter 7 bankruptcy is also referred to as “straight” or “liquidation” bankruptcy. As part of Chapter 7 bankruptcy, the bankruptcy trustee cancels many (or all) of your debts. At the same time it might also liquidate some of your property to pay your creditors.
You won’t be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan.
When you file for Chapter 7 or Chapter 13 bankruptcy, your household income is compared to the median income in your state for a household of the same size. For Chapter 7 bankruptcy, median income is used as a means test to determine if you are eligible for chapter 7 relief or not.
Chapter 7 should be a last resort, not the first option. If you can afford to repay your bills without filing for Chapter 7, do so and stay out of the bankruptcy courts. If you can’t pay your debts, the Chapter 7 is the first place to start.
When evaluating a client’s eligibility for Chapter 7, I start with the client’s stuff. With your help, we identify and value all of your stuff. Most of your stuff has value, and when you file for bankruptcy you are required to tell the court about all of your stuff, whether it has value or not. Some of that property can be used for liquidation. And by evaluating the value of a client’s stuff, we try to get a try to get a sense would be lost in a Chapter 7. This will help the client make an informed decision on how to proceed.
Next we take a look at the client’s current income, starting with the past six months. Then we run a means test. In order to qualify for Chapter 7 bankruptcy, you must pass the means test. if you do not pass the means test, there are a variety of other tools in the tool box that we can use to see if you are eligible for chapter 7, 11 or 13.
And, of course, we consider the client’s debts — secured and unsecured. By filing for Chapter 7 bankruptcy, you are technically placing the property you own and the debts you owe in the hands of the bankruptcy court. You can’t sell or give away any of the property you own when you file, or pay off your pre-filing debts, without the court’s consent. Some debts will automatically survive bankruptcy, like child support, most tax debts, and student loans.
Contact Cossitt Law at (406) 752-5616 to set up a consultation. The initial consultation includes up to a full hour of Jim Cossitt’s undivided attention, analysis and advice based on over 30 years of experience. At the end of the initial consultation, you will understand the pros and cons of your options and be able to make an informed decision with confidence. You will also understand the next steps involved to address your problem and obtain relief.