Chapter 7 Bankcruptcy

A Chapter 7 bankruptcy, also known as a "Straight Bankruptcy" or a "Liquidation Bankruptcy" allows you to discharge your debts. What does "discharge" mean? Quite simply, it means that you can get rid of your debts, not pay them back and keep almost everything you own as per state exemptions. Often you will have to pay back very little and keep all of your property. A Chapter 7 Bankruptcy, in most instances, gives a family a chance to start over again without the burden of bills. A Chapter 7 allows you to have a clean slate and even buy property again.

To fully understand Chapter 7 Bankruptcy, you need to be well informed. It was created so that people in severe financial hardship would not have to suffer forever. It gives them the opportunity to obtain a clean slate and start over and build a credit history they deserve.

Not everyone qualifies for a Chapter 7 Bankruptcy. You must pass what is called the "Means Test."

If you do not qualify for a Chapter 7 Bankruptcy, all hope is not lost. A Chapter 13 Bankruptcy (Court Ordered Payment Plan) is still a viable option. A Chapter 13 Bankruptcy can still make your life much better than it is right now if you are behind on payments, being harassed by debt collectors, and worried about your financial future.

Filing A Chapter 7 Bankruptcy

A bankruptcy starts with the filing of an official petition in the bankruptcy court and a lengthy document called a Statement of Financial Affairs. This statement contains numerous schedules requiring a detailed list of all your debts, including:

All priority debts (including taxes)
All "secured" debts (including home mortgages and auto loans) that have property as "collateral"
All unsecured debts of any kind (credit cards, etc.)

What Is The "Means Test?"

When the Bankruptcy Code changed in 2005 a test, called the "Means Test" was added to determine if you would qualify for the complete removal of your debts through a Chapter 7 Bankruptcy. The bar was raised in 2005 and now not everyone qualifies for a Chapter 7 Bankruptcy.

Those who do not pass the "Means Test" but still want to file for bankruptcy will have to file for a Chapter 13 Bankruptcy, which is simply a payment plan ordered by the Bankruptcy Court to repay their creditors.

The "Means Test" has two parts. The first part simply compares your current family income to the median income for a family of your size in the State of Florida. If your current family income is higher than the median income for a family of your size in Florida you do not automatically qualify for a Chapter 7. You must go on to the second part of the "Means Test" to see if you qualify for a Chapter 7 Bankruptcy.

Misunderstandings About Chapter 7 Bankruptcy

A lot of people have the misunderstanding that they will never be able to buy a home again if they file a Chapter 7 Bankruptcy. Well, that was true way back when, but not today. There are thousands of FHA and VA assumable loans. You will have to save up some cash, but you will be able to buy property again.

You may also have had the understanding that you won't be able to buy a car after fling a Chapter 7 Bankruptcy. Again, not true. When you file a Chapter 7 Bankruptcy, you get rid of all of your debts. You are a good risk to a car dealer. The car dealer will look at dealing with you as an opportunity to maybe charge you a little bit more interest and ask you for a little bit more money as a down payment. The car dealer knows you are not going to do a bankruptcy again any time soon and that you are trying to rebuild your credit.