Bankruptcy -- Chapter 7
You May Still Qualify for Chapter 7 Bankruptcy Protection
Individuals can file for bankruptcy in a federal court under Chapter 7 ("straight bankruptcy", formally liquidation). In a
Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property, including:
Most liens, such as real estate mortgages and car loans, can survive, but many types of unsecured debt (credit cards,
judgments/garnishments for repossession or bad debt, and medical bills) are cancelled.
There are 19 (as of 2005) general classes of debt not discharged in a Chapter 7. These include, but are not limited to:
child support, most taxes, most student loans, and fines and restitution imposed by a court for any crimes committed by
the debtor.
In 2005, in order to prevent bankruptcy "abuse," the U.S. Code was modified to require a formal means test to
determine if an individual was attempting to abuse the system. The means test takes into consideration an individual's
average income over a period of six months prior to filing, and if the income falls below the median family income for
that area, there is NO PRESUMPTION of abuse. For example, in Arkansas for a family of one -- the median family
income is $29,930;
a family of two is $38,438; a family of three is $42,629; a family of four is $51,478; and so on.
In addition, a potential debtor is now required to participate in an approved consumer credit counseling prior to filing.
This counseling can be completed online or over the telephone at a cost ranging from $35 - $60 and takes between 45
minutes and 2 hours to complete, depending upon the complexity of the situation.