“Who qualifies for Chapter 7 bankruptcy?”
About an hour before I wrote this blog post, I spoke to a potential bankruptcy client who was so distressed because one of her friends told her,
“You cannot wipe out debt anymore with bankruptcy. Haven’t you heard? They changed the law a few years ago.”
I cannot believe that, after all these years, this myth is still being foisted upon people by their own friends! Don’t you just love it when nonlawyers give legal advice? I think not! This poor lady suffered great distress because of bad legal advice given to her a by a friend. All this time before she spoke with me, she thought she had no hope.
(Side note: If you want legal advice, go meet with a bankruptcy attorney. Every case is different and sometimes there are exceptions. For this reason, I have a disclaimer on my website that clearly states, “Nothing on this website should be construed as legal advice. If you want legal advice, call me.”)
Here is the truth. Yes, the bankruptcy laws changed in October 2005. People who have gross earnings for the past six months that are higher than an average family of their size most likely won’t be able to file Chapter 7 because they won’t pass the means test. For more on the means test, click here.
However, the vast majority of people I meet with are under the median income. As a consequence, the means test is usually not a problem for most people. Also, almost every person I meet does not have any assets that cannot be protected by the Georgia bankruptcy exemptions.
I think the more important question that potential filers should be asking is, “Do you really want to file Chapter 7?”
Chapter 7 is a great tool for completely eliminating credit card and medical debts. However, for some people, it just does not make sense for them to file. A person can file Chapter 7 only once every eight years. As a consequence, you don’t want to file Chapter 7 right now if you know some large debt is coming down the pipe in the near future that you will need to eliminate. Once you file Chapter 7, any debt that you incur after the case is filed will not be eliminated.
Examples of people who might want to wait to file Chapter 7:
- people who know that they most likely will incur large medical bills in the near future. For example, if you know you are going to have heart surgery next month, you might want to wait until after the surgery is completed so that you can make sure your health insurance will cover everything.
- people who are about to inherit money. A Chapter 7 trustee can seize an inheritance that is received up to 180 days AFTER the Chapter 7 discharge. Why not wait and find out exactly how much, if anything, you are going to inherit?
- people who are about to receive a large bonus from their employer
If you own assets with high values, make sure you list them on your bankruptcy petition and carefully review them with your bankruptcy attorney. If they cannot be protected by Georgia exemptions, you may not want to file Chapter 7 at all. You get to quit Chapter 7 just because you don’t like the way the case is going. If the Chapter 7 makes a move to sell an unprotected asset, you won’t be able to stop her.
In addition, if you have a cosigned debt, you may not want to file Chapter 7 because they will go after the cosigner. In conclusion, spend some time with your bankruptcy attorney so that he can help you make the best decision.