Chapter 7 bankruptcy is the most common type of bankruptcy in the United States. If most of your debts are unsecured and you meet the necessary income requirements, filing for Chapter 7 bankruptcy can be a way to get your finances back on track.
Eligibility for Chapter 7 Bankruptcy
Not everyone is able to file for Chapter 7 bankruptcy. To qualify, you must:
- Complete an individual or group credit counseling course from an approved credit counseling agency
- Have an average monthly income that is less than the median income for the same-sized household in your state or pass a means test showing your disposable income isn’t high enough to make partial payments to unsecured creditors
- Have no recent bankruptcy filings on record (a Chapter 7 bankruptcy during the past eight years or a Chapter 13 bankruptcy during the past six years)
- Not behave in a way that suggests to the court that you’re seeking bankruptcy to defraud your creditors
If you have previously tried to file a Chapter 7 or 13 bankruptcy and your case was dismissed because you didn’t qualify, you must wait at least 181 days before trying to file again. If you are unable to meet the qualifications for a Chapter 7 bankruptcy, you may qualify for a Chapter 13 bankruptcy.
Debt That Can Be Forgiven
Types of debt that can be forgiven in a Chapter 7 bankruptcy include:
- Credit card debt
- Personal loans
- Collection agency accounts
- Medical bills
- Past-due utility bills
- Auto accident claims (unless they involve drunk driving)
- Dishonored checks (unless they involve fraud)
- Other forms of unsecured debt you’ve decided to list on your petition
- Mortgage (if you’re willing to lose possession of the home)
- Auto loan (if you’re willing to lose possession of the vehicle)
Debts that can’t be forgiven in a Chapter 7 bankruptcy include:
- Student loans
- Back taxes
- Child support
- Court fees and penalties
- Homeowner Association fees
- Any unsecured debts that weren’t included in your filing
What to Expect
In a Chapter 7 bankruptcy, non-exempt property must be sold by a trustee to repay a portion of your debts before the remaining balances can be forgiven. The property that you are allowed to keep is referred to as exempt.
New York is one of the few states where you are allowed to use either federal or state exemptions to protect your property. However, state exemptions for Chapter 7 filings are generally more favorable than the federal exceptions. For example, New York homestead exemptions are substantially higher to account for the state’s high cost of living and vary by county of residence to factor in the local real estate market. New York bankruptcy exemptions also allow you to keep 90% of income received within 60 days before filing bankruptcy, and court-ordered alimony, maintenance, or child support, while federal exemptions say that income you've earned but not yet received becomes part of your bankruptcy estate.
In most cases, people who qualify for Chapter 7 bankruptcy are able to use either state or federal exemptions to keep most or all of their personal property. Couples who are legally married and filing together double their personal exemptions, thus allowing them to keep even more of their assets. Working with an experienced bankruptcy attorney is the best way to ensure you’re using all available exemptions to protect your assets.
A Chapter 7 bankruptcy generally takes 80 to 100 days from filing to when your debts are discharged but could take longer if additional documentation is required or your property must be sold to repay your creditors. You will generally be required to make just one court appearance, which takes place about four to five weeks after your papers are filed.
Your bankruptcy will stay on your credit report for 10 years. However, your credit score will slowly improve over time if you show a history of financial responsibility. Within 18 months, you may be able to qualify for a new line of credit. Within two to four years, you may once again qualify for a mortgage.
Alatsas Law Firm Can Help
If you think that a Chapter 7 bankruptcy may be the right choice to deal with your debt, experienced attorney Theodore Alatsas can answer any questions you have and guide you through the process step by step. We understand that this is a big step and want you to be confident you’re making the best decision for yourself and your family.
Alatsas Law Firm is conveniently located for residents of Brooklyn, Queens, and Staten Island. Our ground floor office is handicapped accessible with a subway stop and two bus lines nearby. Contact us today to schedule a free, no-obligation initial consultation.