Frequently Asked Questions on Chapter 7 bankruptcy

What is Chapter 7 bankruptcy? 

Chapter 7 liquidation bankruptcy comes from the Bankruptcy Code found at Chapter 7 of Title 11 of the United States Code.  Chapter 7 is designed to give the New York debtor a new start. In Chapter 7, the debtor gets released from having to pay all dischargeable debts.  Creditors are not able to file claims on discharged debt in the future. Most individuals get to keep all of their property such as clothes and furniture, including their home, in a Chapter 7. 

Who can file for Chapter 7 bankruptcy? 

A New York resident who qualifies under the means test can file Chapter 7 if s/he was not granted a Chapter 7 discharge within the last Eight  years and a bankruptcy case has not been dismissed within 180 days from the filing date.  The means test involves calculating a debtor’s current monthly income, and comparing the amount to the median income for the size of the consumer’s household in New York. If the monthly income is above the New York median income, the bankruptcy case will be presumed an abuse of bankruptcy laws, unless the individual passes a means test.

In the means test the debtor averages income over the last six months before filing bankruptcy. Then, compare the income with New York’s median income. If the annual income is less than New York’s median income, the debtor does not have to pass the rest of the means test. If the income surpasses the median income, the individual takes the full means test. The US Trustee publishes median income amounts at www.usdoj.gov/ust.

When should a debtor file for Chapter 7 bankruptcy? 

When debt is insurmountable to repay, considering bankruptcy may be effective in helping a debtor get out of debt.

If an individual believes s/he will incur more debt or knows s/he will receive money from alimony, an insurance policy, or an inheritance, it may be better to wait to file a bankruptcy case. Income from deaths in the family, insurance, or divorce may need to be turned over to the bankruptcy trustee if someone receives moneys 180 after filing bankruptcy.  During the 341 hearing, the trustee will ask questions about lawsuits, inheritance, child support and alimony.

Can a debtor keep a house in a Chapter 7 bankruptcy? 

An individual may keep a home under Chapter 7.  If an individual files Chapter 7, s/he can keep a house if s/he does not exceed the exemption limit on equity in a home.  If s/he exceeds the exemption limit, s/he may have to pay the trustee some cash in order to keep the property.