When people think of bankruptcy protection and getting a Fresh Start, chapter 7 bankruptcy relief is typically what comes to mind. The beauty of a chapter 7 bankruptcy filing is that it allows you to eliminate your unsecured debt. In other words, credit card debt, medical debt, pay day loans, and personal loans will be eliminated once a chapter 7 discharge order is entered by the court. Similarly, judgments previously obtained against you will become unenforceable, garnishments will cease, and if the circumstances are right, old tax debt obligations may be eliminated as well. Moreover, if your previous home was sold in a short sale, was taken over by the bank following a foreclosure the chapter 7 bankruptcy will relieve you of your personal legal obligations on the mortgage(s) loan.
Some debts however, such as alimony, child support, and recent income tax liability cannot be discharged in bankruptcy. The same can be said for student loans. Barring exceptional circumstances they cannot be discharged in bankruptcy. Court fines and tickets also fall into this category.
Regretfully, not everyone can qualify for chapter 7 bankruptcy. There are income limitations based on your household size. Generally speaking, if you do not make a whole lot of money, chances are that you will automatically qualify for a chapter 7 bankruptcy. If you make an amount of money that is above Virginia’s median income for your household then you will have to take the Means Test. If you “pass” the Means Test, then you are entitled to chapter 7 bankruptcy relief. If your income for your household size is particularly high and you cannot “pass” the Means Test, then your only remaining option is a chapter 13 bankruptcy. Please see my blog post Virginia’s Means Test: Will You Pass The Test? for a further discussion on the Means Test.
Another question that comes up from time to time is the frequency with which you can file again and obtain a chapter 7 bankruptcy discharge. If you previously filed a chapter 7 bankruptcy case AND got a discharge, then you have to wait eight years from the time of filing before you can file another chapter 7 bankruptcy. If you previously filed a chapter 13 bankruptcy AND got a discharge, then you only have to wait four years to file a chapter 7 bankruptcy.
Finally, in keeping with the motto of “there is no such thing as a free lunch,” the bankruptcy law expects you to turn over to the bankruptcy trustee all assets that cannot be exempted (protected by Bankruptcy Law in other words). However, the assets that cannot be exempted are typically only those of significant value. Your older model car, the couple of thousand of dollars you have in the bank, your clothing, home furnishings, wedding ring, and retirement accounts, among other assets, are protected and will not have to be surrendered. That is why 95% of chapter 7 bankruptcy filings are described as “No Asset Cases.” Meaning the individual filing will not be expected to turn over any assets to the bankruptcy trustee. You get to keep everything you own upon the filing of your bankruptcy case.
As for how long the process takes, typically about 100 days from the time that your case is filed with the court until you get your discharge order and the case is closed.
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