Chapter 7 Bankruptcy
May 27, 2009
In order to qualify for Chapter 7 Bankruptcy, you must pass the “means test.” That means that if your income is less than the median income in your county, you qualify to apply for bankruptcy protection. In order to find out if your income is above or below the median income for your area, please contact our office and one of our experienced bankruptcy attorneys can apprise you of where your income falls in the context of the “means test.” If, however, your income is above the median income for your county, you may still qualify, but additional information that you provide will have to be.
When one files for Chapter 7 bankruptcy, the court appoints a trustee who will collect and sell (“liquidate”) all non-exempt property and distribute the proceeds to the appropriate creditors. Any remaining dischargable debts will be discharged at the end of the process.
The definition of “exempt assets” varies from state to state, but in New York, the following assets are generally exempt from liquidation in Chapter 7 bankruptcy:
- $2,500 in cash and $2,500 in clothing and household furniture, or $50,000 in equity in a home that is located in New York and is the principal residence of the debtor
- a car with up to $2,400 in equity,
- “qualified” retirement plans, such as 401ks and 403b plans,
- up to $600 in work tools
- personal injury compensatory recoveries to up to$7,500 (not including pain and suffering)
- security deposits
Any excess equity in your home or car, above the levels outlined above, must be “cashed out” in order to pay your creditors. It should be noted that certain debts are not dischargable in a bankruptcy proceeding. The following debts are among the most common that generally may not be discharged:
- Child Support
- Spousal Support
- Back Taxes
- Most Student Loans
- Who Should File for Bankruptcy?
- Which Type of Bankruptcy Should I File?
- Chapter 13
- How Do I Rebuild My Credit After Bankruptcy?
Picture courtesy of NateBurnsteinlaw.com