Chapter 7 bankruptcy may help Massachusetts residents with heavy debt

People struggling with debt may be able to get relief under Chapter 7 bankruptcy. Qualifying can be tricky, but may help you keep some of your property.

Though a person with more debt than they can handle may feel trapped, they may actually have several options. In some cases, a claim under the Fair Debt Collection Practices Act can help, or you may be able to negotiate a settlement with one or more creditors.

Other cases are more complex, so that bankruptcy may be the best way to go to obtain financial relief. Even here, however, people may have more than one alternative. Depending on their individual circumstances, they may be eligible for Chapter 7 bankruptcy.

What is Chapter 7 bankruptcy?

Under Chapter 7 bankruptcy, some of the debtor’s property is liquidated, or sold in order to repay some of the money owed. Some property is exempt from liquidation, which in this context refers to sale for repayment of debt. For example, property that is already subject to a lien or mortgage, like the debtor’s house and car, are likely exempt. Note that his does not eliminate your mortgage or car payments. This simply means that you may get to keep those assets and continue to make payments on them, while getting relief from other debts, like credit card bills.

Qualifying for Chapter 7

The eligibility requirements to qualify for Chapter 7 are fairly strict. For example, the debtor must pass a means test. Essentially, this test compares the applicant’s monthly income with his or her expenses. The question the court applies to this data is, would allowing the applicant to go through bankruptcy under the provisions of Chapter 7 be an “abuse” of the system?

Applicants are required to go through credit counseling within 180 days before they file for Chapter 7. They must submit a certificate proving that they did so, along with their petition, a debt repayment plan and documents related to their income, expenses and property. Married couples may file jointly, but must fill out all necessary forms separately.

There are also fees, but the court may waive them if the applicant’s income is less than 150% of the poverty level.

After filing, a case trustee will be assigned to the case. The trustee will examine the debtor’s assets for nonexempt assets that can be liquidated. However, most individual Chapter 7 cases do not involved liquidation, as opposed to business cases

A fresh start

Excessive debt can be a terrible burden on a family. Bankruptcy has helped many people in Massachusetts get out from under and start again. There is more than one type of bankruptcy. Just which type is best depends on the individual’s circumstances.

Keywords: bankruptcy, Chapter 7