How Does Chapter 7 Bankruptcy Help Resolve Debt?

A Chapter 7 Bankruptcy Lawyer can help you eradicate most of your debt by liquidating your assets. A trustee is often appointed by the court to take possession of your assets, sell them, and use the funds to pay your creditors. Eradicating debt is an important factor to achieve financial independence. 

Define Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also known as liquidation bankruptcy or straight bankruptcy. This is the most conventional form of bankruptcy filed in the United States. After filing for a Chapter 7 bankruptcy, the court will appoint a trustee over your case. The main job of the trustee is to verify and take ownership of your assets. 

It is also the role of the trustee to dispose of your assets to get the most value out of them. In the states of Alabama and North Carolina, the bankruptcy court will act as the trustee. The funds accumulated after selling your assets are used to pay off your accumulated debts. This also means that creditors must present proper claims to receive remuneration. 

The trustee will not deprive you of all of your assets. A bankrupt person is entitled to some form of “exempt property” to help them start all over again after the bankruptcy. The exemptions differ from state to state but in most cases, this includes a home, a car, property needed to earn a livelihood, and possibly retirement accounts. Contact a law firm such as Sasser Law Firm to find out what could be the exemptions in your case. 

Creditors rarely receive all that is due to them after filing bankruptcy. People that file for Chapter 7 bankruptcy seldom have enough assets to cover their debts. After the funds are used to pay a majority of the debt, the unpaid debt is “dismissed” so that the person no longer owes anything. 

What Is The Means Test?

You need to successfully pass the means test if you are filing for a chapter 7 bankruptcy. The means test was first added to the bankruptcy code in 2005. The basic assumption made by the means test is that you have the “means” to pay off most of your debt. The basic assumption made by the means test calculation is that you need to be financially responsible for your livelihood.

The means test examines your monthly income with the average income of people in your state. It also evaluates the prices you pay for items and compares them with the IRS Local Standards. The comparison provides the information of analysis on whether you are spending too much on certain items. You may not be able to file for a chapter 7 bankruptcy if you do not pass the means test.  

Meeting With Creditors

The meeting with creditors is scheduled by the court. This is also known as a “341 meeting” based on the bankruptcy code that delivers it. All the creditors that have a debt or loan with the soon to be bankrupt individual are present at this meeting. 

Your auto-finance organization will be at this meeting. They will want to know how you intend to manage your remaining payments. They will make sure you understand what you are doing and how this will impact your assets. Finally, you will be issued with a debtor’s discharge if everything goes smoothly.