If you are overwhelmed by unsecured debts (such as credit card debt and medical bills), you may benefit from a Chapter 7 bankruptcy. When most people file for bankruptcy in Kentucky, they file under Chapter 7. Sometimes called a “liquidation bankruptcy,” it involves selling your nonexempt assets to pay off your creditors. In exchange, most of your remaining debt is wiped out.
In the past, bankruptcy was incorrectly viewed as shameful. However, we now understand that it is an important federal consumer protection. Chapter 7 bankruptcy is simply your first step towards a healthier financial future. We can help you reset and rebuild.
Do I Qualify for Chapter 7 Bankruptcy?
In order to qualify for Chapter 7 bankruptcy, you must pass its means test. You must show that either:
- Your monthly household income is below Kentucky’s median income (as of May 1, 2017, $72,863 for a family of four), or
- After allowed expenses are subtracted, your monthly household is below the means test’s threshold.
It can be difficult to perform means test calculations without the help of an experienced bankruptcy lawyer. The median income and means test thresholds change over time. And, it’s important that you include all of your allowed expenses when performing calculations. (If you don’t qualify for Chapter 7 bankruptcy, don’t panic. You may still be eligible for a Chapter 11 filing.)
Do I Lose All My Property?
During a Chapter 7 bankruptcy, all of your nonexempt property is liquidated (or sold). However, bankruptcy exemptions cover certain types (and certain amounts) of property. If your equity in that property is within the exemption, you can keep it. Exempt property typically includes specific amounts of:
- Home equity,
- One motor vehicle,
- Personal property,
- Pensions and retirement funds,
- Personal injury and other compensation awards,
- Public benefit payments, and
- Certain professional tools and materials.
In Kentucky, you can choose between either the state or federal bankruptcy exemptions. (You cannot, however, “mix and match” state and federal exemptions — you must use one set or the other.) An experienced bankruptcy lawyer can help you decide which exemptions best serve your needs.
In many cases, most or all of your property is considered exempt. For example, under Kentucky’s bankruptcy exemptions, you can retain $23,675 of equity in your home ($47,350 if you are a married couple). Suppose your home is worth $200,000 and owe $170,000 on your mortgage. Since you only have $30,000 in equity in your home, your home is protected and exempt provided, however, you can afford to continue to make the mortgage payments.
The law also allows you to keep specific amounts of equity in vehicles, household good and furnishings and retirement accounts such as 401(k)s. Your lawyer should be well versed in these exemptions and can explain how a Chapter 7 bankruptcy can help you.
If you do not have nonexempt property, your bankruptcy is considered a “no-asset bankruptcy.” In these cases, your bankruptcy trustee will file a no-asset report — and your creditors will receive nothing in exchange for the discharge of your debts.
Filing for Chapter 7 Bankruptcy
Before you file for Chapter 7 bankruptcy, we recommend that you organize your debts and assets and get an idea of your financial position. It’s important to have a solid understanding of your assets and debts. It is important to disclose all of your property so your attorney can properly advise you on what is best for you and your family.
Once you have fully compiled and organized your records, you and your lawyer will submit a comprehensive Chapter 7 petition. This petition includes a series of forms that explain your finances in detail. As soon as you file your petition, the bankruptcy court issues an automatic stay.
This automatic stay is a valuable benefit during a bankruptcy. It prevents most of your creditors from attempting to collect your debts. In other words, the stay stops your creditors’ harassing phone calls, letters, wage garnishment, and lawsuits. No creditor can even call you without court permission!
Next, the court will appoint a bankruptcy trustee. The trustee oversees the liquidation of your assets and the distribution of payments to your creditors. Typically, it takes less than six months to complete a Chapter 7 bankruptcy.
Speak With a Chapter 7 Bankruptcy Lawyer
Chapter 7 bankruptcy can give you a fresh start. Too frequently, hardworking people become overwhelmed by debt — especially after a job loss, medical emergency, or divorce. The lawyers at Farmer & Wright are here to help. We combine extensive knowledge of accounting principles and bankruptcy law to our clients’ advantage. Contact us for a free consultation.