Many Virginia families have been looking for solutions to their household debt problems. One solution that has benefited many families is filing for bankruptcy. Filing for bankruptcy allows a family to discharge (which means to officially get rid of) most of if not all of their household debts. There are different types of bankruptcies that a person or family may file and this FAQ addresses the most frequently asked questions that clients have concerning Chapter 7 bankruptcy.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy allows individuals, families, and businesses to discharge their debts and emerge from the bankruptcy process with a clean financial slate. To do so, the bankruptcy law requires the debtor (i.e., the person who files for bankruptcy) to submit a Chapter 7 application to the bankruptcy court.
Who Can File a Chapter 7 Bankruptcy?
Since Chapter 7 provides for the complete (or near complete) elimination of the debtor’s bills, it is only reserved for people who really and truly cannot meet their debt obligations. The bankruptcy court does not want people who can afford to pay their debts (but just don’t want to) to be able to file for Chapter 7 and receive a discharge. In order to prevent this, the U.S. Congress created the “Chapter 7 means test” which allows the bankruptcy court to determine whether or not a prospective debtor’s income-to-debt ratio shows that the debtor truly cannot afford to pay his or her bills.
In order to complete the means test, the debtor will need to calculate his or her household’s expenses, monthly bill obligations, and monthly income. These figures will then be compared with figures compiled for the debtor’s county of residence in order to determine if the debtor qualifies for Chapter 7. The means test can be very, very complicated which is why it is highly advised that a prospective debtor contact our office to benefit from the assistance of an attorney who can complete the means test on their behalf.
How To File Chapter 7 Bankruptcy
Once a debtor has passed the means test, the next step in the process is filing the actual Chapter 7 bankruptcy application with the court. To do so, the debtor (or the debtor’s attorney) completes a petition that outlines all of the debtor’s income, assets, property, bills, etc. The information provided on the petition must be true and accurate and it is the debtor’s responsibility to carefully review the petition and to correct any errors on it before submitting it to the court.
Once the court reviews the petition and all other Chapter 7 requirements are met (such as the 341 meeting, the credit counseling, and the debtor education counseling), the court will approve the debtor’s discharge and the debtor will no longer owe the qualifying debts that were listed on the petition (but please note that some forms of debt, such as student loans and alimony or child support cannot be discharged).
Does Chapter 7 Bankruptcy Affect My Credit Score?
This is perhaps the most frequently asked question our office receives. To be honest, banks are not exactly thrilled when they see that a loan applicant has a past bankruptcy filing on his or her credit report. But the extent to which a bankruptcy will affect your credit score truly depends on your score before you filed for your bankruptcy application. If your score was relatively high, the Chapter 7 shouldn’t impact it too much. But if your score was already low, it will likely continue to decrease as a result of the bankruptcy.
Disclaimer: The information provided on this website should not be construed as a legal advice or representation by the Callan Law Firm, P.C. Any use of this website does not establish an attorney/client relationship between the user and the Law Firm. We do not accept any professional responsibility for a case unless there is a retainer signed by both parties (Law Firm and client).