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How Does One Qualify For Chapter 7?
Filing for bankruptcy gives a fresh start to individuals or married couples who find themselves in tough financial times. In a Chapter 7 personal bankruptcy, all credit card debts and “unsecured” debts are eliminated and it gives you a chance at a new life. Secured debts that you may have can be kept, if you choose to do so. You will continue to pay the accounts you choose to keep as if you never filed bankruptcy.
After bankruptcy, you can recover good credit in about two years. Filing for bankruptcy does not mean you will had 7 to 10 years of bad credit. This is a myth. Many confuse the reporting of the bankruptcy on your credit report with the actual scoring of your credit report. Credit card companies typically offer you new credit cards right after the bankruptcy is over. Qualifying for a mortgage will take about two to three years after bankruptcy.
The most often asked question is how does one qualify for Chapter 7 bankruptcy? Essentially, there are three things that exist in the average chapter 7 filer’s life at the time of filing: (1) average to below average income for your household size, (2) debt beyond what you can reasonably afford to pay and (3) no substantial assets.
One: Average To Below Average Income For Your Household Size
To qualify for Chapter 7 personal bankruptcy, you must have average to below average income for your household size. Your income level is determined by your household’s circumstances. This includes factors such as your cost of living and deductions that are taken out of your paychecks.
Every case has its unique circumstances. Income levels that qualify for Chapter 7 bankruptcy filing are based on median income figures for the state. However, these figures are not strict guidelines. You may be able to qualify for Chapter 7 bankruptcy even if your income is above the median income once your living expenses and payroll deductions have been taken into consideration. If your income is too high to qualify for Chapter 7 bankruptcy, you can consider seeking protection under Chapter 13 bankruptcy.
Two: Debt Beyond What You Can Reasonably Afford To Pay
There is no minimum or maximum debt amounts required to file for bankruptcy. The total amount of debt that is considered affordable can vary greatly from one individual to another. For example, a $4,000 credit card debt to a single parent with two children, earning $28,000 a year with no child support can be just as overwhelming as a $20,000 credit card debt for an individual with higher income. Rather than asking whether you have too much or too little debt to file, the better question to ask your yourself is whether, given all of your circumstances, can you afford to pay the debt you have and maintain a reasonable standard of living.
Three: No Substantial Assets
Filing Chapter 7 bankruptcy does not mean you lose all of your assets or possessions. The bankruptcy law is designed to protect individuals’ cars, homes, household goods, tax returns, retirement, and other assets up to certain values. In the great majority of bankruptcy cases, consumers are allowed to keep most, if not all, of their assets.
If you are interested in learning more from an attorney in bankruptcy practice, call us today at 662-338-4687 for a free consultation.