The Cassidy Law Firm Blog

Tuesday, May 13, 2014

Do I Qualify to file a Chapter 7 Bankruptcy in Ocean County?

Deciding to pursue bankruptcy is never an easy decision. Once you have made that decision you will need to decide which chapter to use for your bankruptcy. An individual (or married couple) can file using chapters 11, 12, 13, and 7; however, most use either chapter 13 or chapter 7. Whether or not you have the option to choose between the two depends on whether you qualify to file a chapter 7 bankruptcy.

A chapter 7 bankruptcy in Ocean County allows the debtor to discharge most debts without being required to repay any of them back whereas in a chapter 13 bankruptcy (as well as in a chapter 11 and chapter 12) the debtor is required to develop a repayment plan that contemplates the repayment f most debts over an extended period of time. Understandably, this makes a chapter 7 bankruptcy the more attractive option for most debtors. When the various chapters were created, the idea behind chapter 7 was that it would be used by low income debtors who did not have the means to repay debts for unforeseen bills such as hospital bills. Unfortunately, debtors who could afford to repay their debts frequently took advantage of the option to file chapter 7 bankruptcy prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPCPA.

To prevent abuse of chapter 7, BAPCPA created the “means test”. Before a debtor can file using chapter 7 the debtor is now required to pass the means test. The test compares a debtor’s income with that of other similarly situated households within the same geographic area. If the debtor’s income is below the median for the area after completing the basic means test calculations, chapter 7 may be used. If the basic calculations put your income slightly above the median there are more advanced calculations that can be done which may bring your income below the median, allowing the use of chapter 7 when you file for bankruptcy.

Just because you qualify to file a chapter 7 bankruptcy in Monmouth County doesn’t always mean it is the best option. Although chapter 7 allows you to discharge, or eliminate, most debts, it also puts your non-exempt assets at risk of being seized and sold to satisfy creditors. Be sure to consult with an experienced Ocean County bankruptcy attorney before deciding which bankruptcy chapter is best for you and your circumstances.


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