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Chapter 7

Complete Debt Forgiveness

With the reformation of the conditions for declaring Chapter 7 bankruptcy in 2005, a person who is considering filing under this chapter must now pass a means test. Also called the "liquidation" bankruptcy, this chapter provides relief from the burden of unsecured debt and protection from creditor demands. In order to qualify, your income must be less than the median income for your area. If your income is higher than the median level you must calculate your disposable income.

Subtract your monthly expense for utilities, payments on items which will not be included in the bankruptcy and your rent to determine your monthly disposable income. Multiply this figure by 60 to determine the amount of money which would be available to pay unsecured creditors over a five year period. If the total is less than $10,000 you may qualify. If your disposable income is less than $100 a month you will qualify for Chapter 7 protection. If your disposable income is $100 a month or more and the total over 60 months is equal to 25 percent or more of your unsecured debt you can file for Chapter 13.

What Is Liquidated & What Is Exempt

One of the most common bankruptcy myths is that a person who files for Chapter 7 is left with no assets. The truth is some assets and possessions are exempt, such as your car up to a certain value, work tools, most personal items, and many retirement funds and plans. Many people keep their homes. According to the state of Arizona’s bankruptcy code (§ 33), an individual may retain up to $4,000 in personal property. That amount can be doubled for a husband and wife. According to A.R.S. § 33-1125(3), domestic pets and farm animals can be kept up to a valued amount of $500. One car may be kept, up to a fair market value of $5,000. That price doubles if the person filing is disabled. There are many more exemptions that our firm is prepared to explain to you.

As soon as you petition for Chapter 7 bankruptcy, a trustee will be assigned to your case. This trustee will be responsible for assessing all of your assets and declaring what is exempt and what is not. According to the U.S. federal courts, most individuals who file this chapter of bankruptcy have their trustees file “no asset” on their reports. What this means is that nothing will be liquidated and distributed to creditors.

The trustee in your case has the authority to recover money under something known as “avoiding powers.” Not all debts are eligible for discharge. Child support, alimony arrearages and most tax debts will not be included in your dischargeable debts. A chapter 7 bankruptcy lawyer skilled in tax resolution and other complex issues can review your specific circumstances to help you to determine your best strategy for achieving a fresh start.

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