Does Chapter 7 Wipe Out All Debt?
Mar 06, 2021 09:30 AM EST
You have had a rough year and you are considering filing bankruptcy. As working hours have been cut due to the Coronavirus, you have had to rely heavily on your credit cards. You thought that things would be better by now, but you are still struggling to keep your head above water. You should know that not every single bill will be wiped out when you go bankrupt.
How do I qualify for Chapter 7?
Before you begin Chapter 7, you will want to make sure that you are actually in debt enough to file bankruptcy.
The state has a basic "means test" to see if you qualify. Every state has a median income for its citizens. The median income is based on the household's size and where a person lives. If a person's income is less than the median for their state and household size, they may file for bankruptcy.
If a person has an income that is over the median, they will have to take a means test to see if they can move forward. The means test will have you prove that a person's debts exceed their income. They will have to establish that after paying for necessities, they will not have the disposable income to pay their bills.
If you pass the means test, you can then hire a Chapter 7 lawyer. You will gather records of all of your debts and provide the last couple of years of tax returns to the court.
If you have any assets, you will have to have records of those as well. You will also have to take a credit management class.
Your attorney will file paperwork, and a date will be set for the meeting of creditors. On that date, you will meet with the bankruptcy trustee, and your bankruptcy will be discharged. The trustee will inform you of what bills are covered by the discharge.
What kind of Debts will a Bankruptcy Discharge
When you file for bankruptcy, your debts will remain on your credit bureau report, but your creditors will not be able to pursue you in any way for the money that you owe.
Most debts that are not owed to the government are covered in bankruptcy. Credit card bills, medical bills, debts to anyone who has successfully sued you, and car notes are covered by Chapter 7.
What kind of debts will I have to pay?
There are some debts that are not covered by Chapter 7. When you gather your bills, you will put them into several different categories. The top priority categories include such things as child support, student loans, and taxes. If you have any assets at all, the money will go to pay for the top priority debts.
Most student loans are not covered by Chapter 7 bankruptcy. Unpaid taxes for the last two years are generally not covered. If the taxes due are over three years old, if they are income-based, and if there was no fraud involved, they may be discharged in bankruptcy.
Taxes that you owe for property will not be covered by bankruptcy. If someone has a lien on your house, the lien will remain even after your chapter 7 is discharged.
You are Not Alone
In spite of the economic disaster that COVID-19 caused, bankruptcy filings have actually gone down over the past year. The fact that the courts were closed may be the real reason for the decline.
The state of New York saw 12,521 bankruptcies in 2020 that were attributed to the virus itself. bankruptcies are expected to increase as the courts reopen.
No one ever wants to file bankruptcy. However, it is understandable in today's tough economic times.