Who Should File Chapter 7 Bankruptcy?

Who can file Chapter 7 bankruptcy? Which bankruptcy chapter should I file? Can I file medical bankruptcy? How often can one file bankruptcy? Can you file for bankruptcy twice? Get answers here.

There are many questions swirling around in the mind of someone contemplating a bankruptcy filing. It can seem so overwhelming.

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It really isn't. Once you understand your options, you will begin to feel a lot less stressed.

I am not an attorney or even a paralegal. I am a private citizen just like you. I have been through the personal bankruptcy process and I understand how stressed out--or even depressed--you might be right now.

I have written this article only to help you understand your options. I strongly urge you to speak with a bankruptcy attorney in your local area before making a final decision about how to proceed.

Who Can File for Chapter 7 Bankruptcy?

Any remaining debt is discharged (done away with by the court) and the debtor is no longer responsible for it.

You never have to pay it. Ever.

U.S. bankruptcy law does not allow everyone to do this. You have to meet certain eligibility requirements.

For instance, you must not have filed for bankruptcy and received a discharge within the past 7 years.

Outside of this time restriction, the single biggest impediment to filing chapter 7 bankruptcy is the means test.

The means test is a complex math calculation used to determine whether or not a debtor is eligible to file chapter 7 bankruptcy.

As a general rule, if you earn less than the median income in your state, you will pass the means test. If you earn more, you will have difficulty passing it.

You can find out what the median income in your state used to be a year or 2 ago by searching for that info online. A bankruptcy attorney who works in your town will know what it is right now.

Go for a free consultation and ask.

If you find that you earn too much to pass the means test, don't give up yet. You may still be able to file chapter 7 bankruptcy. I would urge you to read Bankruptcy Strategies first. It spells out several creative strategies for passing the means test.

Why it is Preferable to File Chapter 7 Bankruptcy

You may not pay every cent you owe under Chapter 13, but you will pay the lion's share of it.

It is also much more expensive to file Chapter 13 bankruptcy than it is to file chapter 7 bankruptcy. I'm talking $5,000 vs $1,500.

Some people (who have the means to do so) may choose to file Chapter 13 because they wish to repay their creditors out of a sense of personal responsibility. Others may choose it out of guilt.

But I suspect that most Chapter 13 filers do so simply because they do not qualify to file for Chapter 7 bankruptcy.

Even if you believe you can afford to repay all of your debt, you may not be right about this. How old are you? Do you have enough saved for retirement? If not, will you have enough time after completing a Chapter 13 bankruptcy (5 years) to save the amount needed?

Do what is in your long-term financial best interest. The bank is not your friend. They did not lend you money out of kindness or even because you really needed it.

It was a business decision.

That is why they had no qualms about raising your interest rates to loan shark levels even when you were making all your payments on time.

You are not a person to your creditors, you are a source of revenue.

Likewise, whether or not you file Chapter 7 bankruptcy should be a carefully thought out business decision.

How Often Can One File Bankruptcy?

You may file for Chapter 7 bankruptcy 6 years after the commencement (filing date) of a Chapter 13 bankruptcy.

The clock starts on the date of the previous filing--not the date the case closed.

If you filed for personal bankruptcy in the past and the case was dismissed, you may not be able to refile for 180 days depending on the reason for the dismissal.

Can I File Medical Bankruptcy?

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If you file Chapter 7 bankruptcy, your medical debt will be eliminated along with all other debt that is dischargeable in a Chapter 7 liquidation.

What you need to understand is that you are not allowed to pick and choose which debts will be discharged and which will not. The bankruptcy code will make this decision for you.

Any debt you have which is able to be discharged under Chapter 7 will be if your filing is successful.

This includes all credit card and store card balances, your mortgage and car loans. In order to keep your home and car, you will have to reaffirm those debts.

Reaffirmation of Debt
When You File Chapter 7 Bankruptcy

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If you own your home and have a mortgage, your bankruptcy attorney will ask you if you wish to keep the house.

Many people file Chapter 7 because they are upside down in their home and wish to discharge the mortgage debt and get out of this mess.

What I want you to understand is that whether or not you can keep your home in a Chapter 7 bankruptcy filing will not be solely your decision. If your lawyer or bankruptcy judge feel that the house payments are a financial hardship on you, they will most likely not allow you to reaffirm the mortgage debt.

Your lender also has a say in it.

They do not have to allow the reaffirmation of a debt even if all other parties are in agreement.

This was the most nerve wracking part of the bankruptcy process for me.

My husband and I really wanted to keep the house we currently live in. Not because of any emotional attachment (I would actually prefer to live someplace else) but simply because it was the cheapest place for us to live.

We bought before the housing boom and our mortgage payment is less than $700 per month. There is nothing we can rent in this area for less than that. If the bankruptcy judge had forced us to surrender the house and rent that would have been a hardship for us.

We were quite nervous until everyone involved signed off on our bankruptcy reaffirmation.

If your mortgage payment is greater than the amount you would pay to rent the same amount of living space in your local area, think very carefully before signing a bankruptcy mortgage reaffirmation agreement.

If you do not reaffirm it, you will no longer be responsible for the debt and you may be able to stay in the home.

In most states, you can do what is called a ride through.

What is a Ride Through?

This is when a debtor discharges their mortgage obligation in Chapter 7 bankruptcy but continues to make the previously agreed upon monthly payment on time each month.

In states that allow ride throughs, the mortgage lender cannot foreclose on or evict you as long as you make the payments on your former mortgage on time.

A handful of states disallow this and demand that you surrender the property if you fail to sign the bankruptcy reaffirmation forms. I know this because Florida, my home state, is 1 of these.

Why Do a Ride Through?

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People in bankruptcy are in precarious circumstances. If things do not improve as quickly as you hope they will and you become unable to maintain your mortgage payments, you could walk away from the house without further repercussions.

The bank would not be able to sue you for the amount outstanding on the loan because that would have been discharged when you filed Chapter 7 bankruptcy.

On the other hand, if you reaffirm the debt and later run into trouble, you will be on the hook for the balance of the loan. Remember, you can't file Chapter 7 bankruptcy again for 8 years.

If you wish to reaffirm and your bankruptcy lawyer agrees with it, he or she will give you a form to sign. Most people think this is the bankruptcy reaffirmation agreement form. It is not. This form just informs the bankruptcy court of your intention to reaffirm.

If your lender is willing to allow it, they will send you or your attorney a reaffirmation of debt form in the mail. You must sign this form and give it to your attorney who will turn it over to the court.

This needs to be done before your case closes in order for the mortgage reaffirmation agreement to be valid.

After signing a reaffirmation agreement, you have 60 days from the date the agreement was filed with the court to change your mind. You need to notify your lender (in writing) that you are rescinding the reaffirmation agreement.

Reaffirming An Auto Loan

If you want to give the car back to the dealer, do not reaffirm.

If you want to keep the vehicle, you can reaffirm the car loan... or not.

Some lenders will let you keep the car even after the debt is discharged as long as you make the payments on time.

Florida Chapter 7 Bankruptcy
What happens in a Florida Chapter 7 bankruptcy? What kind of debt is eliminated by filing Chapter 7 bankruptcy in Florida? Who can file Chapter 7 bankruptcy? Ask Chapter Seven bankruptcy questions here.

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Should Your File Bankruptcy Yourself?
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