Sometimes, a situation occurs beyond the consumer’s control, and they can no longer pay their debts. A consumer overwhelmed with debt in Braintree, Massachusetts, can legally get debts discharged through bankruptcy. There are several types of bankruptcy, but many filers choose Chapter 7.
How Chapter 7 bankruptcy works
Chapter 7 bankruptcy is a liquidation procedure that pays creditors by selling assets using a trustee assigned to the case. Only non-exempt assets, or non-essential property, can get sold, which includes second homes, jewelry, and valuable artwork. The consumer must list all their income sources and assets on the bankruptcy petition and file it with the court.
After the trustee sells assets and pays creditors, the debtor receives a discharge, usually within four to six months. Bankruptcy also only removes certain unsecured debts, which means the lender doesn’t require collateral. Some examples of unsecured debt include past due utilities, old cellphone debt, back taxes, credit card debt, and medical debt.
The means test
To file Chapter 7 bankruptcy, a filer must pass a means test to determine disposable income. The means test compares a consumer’s average income of the past six months to a household of a similar size. If the filer’s income meets that income level, they do not have to proceed to the next step.
If a filer’s disposable income surpasses the limit, the court subtracts allowable expenses from the income. Allowable expenses, or expenses needed for daily living, may include food, medical expenses, mortgages, some taxes, and term life insurance. The consumer can deduct charitable donations to reduce disposable income if they have been making regular donations.
If a consumer doesn’t qualify for Chapter 7, they will have to file Chapter 13. Chapter 13 is a repayment plan that doesn’t require selling property. However, since bankruptcy affects credit for several years, a consumer may want to seek alternatives
