Chapter 7 is often referred to as "liquidation." Under this section of the Federal bankruptcy law, individuals who qualify may be able to discharge most if not all their unsecured debt, such as credit cards or personal lines of credit. With the 2005 amendments to the law, a "means test" is employed to determine if a Chapter 7 filing is appropriate. The figures depend on the number of persons living in the household and are derived from Census Bureau data which calculates the median income of persons living in each state. In Texas for example, the latest figures show that the median income for a single person is $37,676.00, $54,288.00 for a two person household, $55,534.00 for three persons and $64,420.00 for four persons. For each person in excess of four, add $7500.00. These amounts are periodically adjusted for each state.
Despite these limitations, one should not assume that simply because, their income exceeds these figures, that they cannot file a Chapter 7. The means test allows certain deductions that may bring the income below the threshold established by the means test. I obtain sufficient financial information from prospective clients and run it through the means test first to ensure that they qualify. Persons whose debts were incurred primarily for business purposes may not even have to complete the means test. I have filed more than fifty of these personal bankruptcy cases in the past year and all received a discharge of all unsecured debt. If I cannot qualify you for a Chapter 7, I will advise you of this and assist you with other options.
This is not an exhaustive explanation of Chapter 7 bankruptcy and I offer a free thirty minute office consultation to answer any other questions that you may have.