Chapter 7 bankruptcy is the type of bankruptcy most people think of when they hear the term “bankruptcy.” It is sometimes referred to as straight bankruptcy or a no-asset case. In its simplest form, a Chapter 7 bankruptcy filing will eliminate almost all of your debts, but may require you to forfeit some of your non-exempt assets to pay creditors. But, since all states and the federal bankruptcy laws allow a person to protect (exempt) assets, the reality is that in the majority of Chapter 7 cases, the debtor is able to keep all of their assets. The summary of the Chapter 7 Bankruptcy process below is not intended to be a “how to” guide. Please consult with your bankruptcy attorney, or if you are not using an attorney, check with the federal bankruptcy court on how to proceed with out an attorney. Information from the U.S. Bankruptcy Court, District of Massachusetts on Filing for Bankruptcy Without a Lawyer.
Eligibility to File for Chapter 7 Personal Bankruptcy:
Two methods to qualify for Chapter 7
Income is under the amount allowed
To be able to file for Chapter 7 bankruptcy, the person or household filing must have an income below the median income established for each state. To determine your income, add up all of your income for the last six months. Then add any other income sources from any other members of your household for the same six month period. NOTE: Do not include income received from social security, unemployment compensation, or transitional assistance.
After you have the total income number for the last six months, divide by six. This will give you the monthly income for the household. Then multiply the monthly number by 12 for the yearly income figure. To determine if that yearly income is below the amount that allows for filing a Chapter 7 bankruptcy in your state, click on this link: 2010 Median Income Levels:
The current income figures in Massachusetts are:
For a family of:
(Add $7,500 for each person over 4)
If the household income is below these amounts, eligibility for filing a Chapter 7 bankruptcy is established. If the income is over the amount allowed, there is a second step that may still provide for a Chapter 7 filing.
Income is over the amount allowed
If the income amount from the first step is more than the amount allowed, the second step is to deduct certain expenses from your income figure. This process is called taking the “Means Test.” Some of the amounts you are allowed to deduct are set by the IRS and local standards, and can be found here: National Means Test Deductions: Scroll down to section II, numbers 2, 3, and 4.
If after deducting the expenses, your net income (total income minus the allowed deductions) falls below the allowed income amount, there is one final step to determine if a Chapter 7 filing is possible. This is the budget analysis. If your monthly net income is greater that your expenses by $100.00 or more, a Chapter 7 filing is not possible. Instead, filing for relief under Chapter 13 is the option.