This is a general and abbreviated description of the Chapter 7 bankruptcy process and, while I hope it gives you an idea of how this process works, it is not intended to be legal advice and should not be considered or relied upon as such. Feel free to call me for a free bankruptcy consultation at 917-414-6795.

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A Chapter 7 bankruptcy is the most desired kind of consumer bankruptcy. If you qualify for a Chapter 7, you can discharge all your unsecured debt in only about three months while, in most cases, keeping all your possessions. 

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To qualify for Chapter 7 and have all your unsecured debt discharged, you must show that you cannot afford to pay that debt, and you do that by showing that your allowed monthly expenses exceed your monthly household income. When most people think of income they think of their salary, but in bankruptcy other sources of income, such as pension payments, public assistance, and even regular monetary contributions made to you by a family member, must be added in. Furthermore, if you are filing a Chapter 7 by yourself, but you are married and your non-filing spouse is earning income, their income (minus expenses that are exclusively theirs, such as their gym membership dues or their student loan payments) must also be included. 

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In order to keep your possessions in a Chapter 7 bankruptcy, the value of your possessions must not exceed allowed limits as described in the bankruptcy code. Every type of possession you have – from clothes to furniture to money that you have in the bank to your car and your home – is assigned a value limit in the bankruptcy code. You can still file and qualify for a Chapter 7 if you have possessions that exceed those limits, but those possessions may then be confiscated and auctioned off by the trustee with the allowed value limit being returned to you and the excess being used to pay a portion of your unsecured debt. 

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Even if you qualify for a Chapter 7, in some instances it may not be in your best interest to file. For example, if you are currently suing someone for something that might eventually win you a cash award (medical malpractice, for example) or if you are expecting to receive an inheritance, you may be better off waiting until the cash winnings are in hand, at which point you should speak with an experienced bankruptcy attorney. 

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Even if your income is too high for you to qualify for a Chapter 7 today, you may be able to qualify later if, under the guidance of your attorney, you can reduce your income (by, for example, cutting down on overtime) and at the same time by increasing allowed expenses (by, for example, reasonably increasing your income tax withholdings from your paycheck) for a specified period of time, after which your attorney can run the numbers again to see if you will then be able to qualify.

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In some cases you can deal with belongings that are over the value limit by simply selling them before you file your petition, but be advised that there is also a limitation on the amount of cash or cash equivalents that you can bring into a Chapter 7, so before you file you will have to allocate the cash proceeds that you received from the sale of that property strategically, or you can just spend it. Better you spend it, after all, than the trustee.