Chapter 7 Bankruptcy
Chapter 7 is sometimes referred to as “straight bankruptcy.” There is no repayment plan with a Chapter 7. The advantage is that it’s usually over within about four months. Attorney fees are also lower than with a Chapter 13 because there is less work to be done.
When you file bankruptcy, you must complete very detailed paperwork listing all assets, debts, income, and expenses (called “schedules”), which will be filed with the Bankruptcy Court. You will also complete a Statement of Financial Affairs (“SOFA”). You must accurately and completely list all information on your schedules and SOFA.
If you are over the median income (meaning you are in the top half of income earners) for your household size (based on the number of people in your family during the six months before you file bankruptcy), you must also prepare and file a “means test” form, also known as form B22A. The means test is based on Internal Revenue Service standards for various living expenses. This means you are allowed a certain set amount for housing, food, personal care items, automobile expenses, and any other additional expenses necessary for the health and welfare of your family, regardless of how much you actually spend on those items. If, after applying the means test to your case, you have about $109 left over each month to pay your creditors (and sometimes more depending on the amount of debt), then your Chapter 7 filing is deemed “presumptively abusive.” You can rebut this presumption, and sometimes this would be very appropriate. If you fail the means test and cannot rebut the presumption of abuse, your case will be dismissed, or converted to chapter 13. It’s important, therefore, to have complete information in order to evaluate your options.
The court can also dismiss your case if it deems your Chapter 7 filing abusive under the “totality of the circumstances.” In other words, the court will examine your income schedule (schedule I) and your expense schedule (schedule J) to determine whether there is money in your budget to pay your creditors; and it will evaluate your spending habits over the last year or so, any recent large purchases, how expensive your assets are, and many other factors that might indicate a lack of good faith.
Some cases are clearly Chapter 7 cases. Others are clearly not. Many times, it’s not clear until all the information is carefully evaluated. We spend a significant amount of time with you to determine what chapter is appropriate for your case.