There are essentially two kinds of individual bankruptcies, Chapter 7 and Chapter 13. Chapter 7 Bankruptcies are a liquidation of all of your debts. It essentially wipes the sleight clean. In order to determine whether or not you qualify for a Chapter 7 Bankruptcy we evaluate your case in a consultation. The first thing we examine is whether you qualify under the Means test.
The means test essentially is the average household income, per household size, per the area you live in as set out by the IRS. It is adjusted quarterly by the IRS to keep up with changing economic times and inflation. If you are below the means test threshold then you may qualify for a Chapter 7 Bankruptcy. If you are above the means it is presumed that the filing of a Chapter 7 would be an abuse of the Bankruptcy system. There are exceptions to this rule, however I would say in about 95% of all cases this holds true.
The second thing we examine is do you have any equity in any property. If you have equity in property, let’s say a house, then filing a Chapter 7 would cause the trustee to take this property, sell it and pay off your individual creditors with the proceeds. The Bankruptcy Code as well as the Code of Virginia provide us with many exemptions to protect your property and in most cases you do not risk loss of any of your property.
The third prong that we examine is what is your income to expense ratio. If your expenses exceed your income then you may file a Chapter 7 Bankruptcy, however if your income greatly exceeds your expenses you cannot file a Chapter 13.
It is also important to know the ramifications of filing the Bankruptcy. The largest of which is the effect it has on your credit. Most people who are in the position to do a Chapter 7 already don’t have good credit, but filing will plummet your score even further. A Chapter 7 Bankruptcy will affect your credit on average for about 5-7 years. It is not that you will not be able to buy anything or that you will not be able to get any loans, you just will get much worse interest rates than the average consumer.
The positive of the Chapter 7 Bankruptcy is that it will clear your unsecured debt. Basically the only debts that are not dischargeable are taxes, student loans, support obligations, and court fines fees or costs. Pretty much all other debt can be discharged through the bankruptcy. This will clear your debt, stop those pesky debt collectors and allow you a renewed lease on life.