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What does a Chapter 7 Bankruptcy accomplish?

Chapter 7 Bankruptcy accomplish

A Chapter 7 Bankruptcy is used to discharge all of your unsecured debt. If you have secured debt (for example, a house loan secured by a mortgage on the house or a car loan secured by a car) you can discharge that as well, but only if you surrender the collateral (i.e., the house or the car). If you have property that does not fall within one of the exemptions allowed under law, it may be sold by the Trustee to pay some of your debt back to creditors.

If you have property such as a house or a car that is subject to a loan, you may want to consider a Chapter 13 over a Chapter 7. This is because the lien holder (i.e., the bank) has priority over the collateral and may repossess the property to satisfy the debt, even though there are exemptions you can use. Sometimes you can “reaffirm” the debt and keep the property. But (and this is a big “but”) you must still make the loan payments. If you don’t, you may be subject to a deficiency judgment by the creditor and be personally liable for the remaining debt in the future.

The new Bankruptcy laws changed some of the aspects of a Chapter 7 Bankruptcy. For example, if your income is greater than the median income for your state, you will have to pass a “means test” to be eligible to file a Chapter 7. The qualifying test takes a detailed account of your income and expenses and determines if there is any money left over to pay creditors. If you fail this “means test,” you do not qualify for a Chapter 7, but you can utilize a Chapter 13 Bankruptcy.

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