Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing  debts and need a “fresh start”. Chapter 7 bankruptcy generally wipes out or discharges your obligation to pay back your unsecured debts. An unsecured debt is one that has no collateral guaranteeing the debt. Examples of unsecured debts would be general credit cards, medical bills, and signature bank loans.

When you file for protection under Chapter 7, your creditors must immediately stop all attempts (outside of the bankruptcy proceeding) to collect debts from you.

Debtors whose debts are primarily consumer debts are subject to a “means test” designed to determine whether the case should be permitted to proceed under chapter 7. Our experienced consumer bankruptcy attorneys will walk you through the “means test” and determine whether you are eligible to file under Chapter 7. If so, we will prepare and file all the documents required to take you through the bankruptcy process. We will also represent you in hearings or meetings with creditors, the bankruptcy trustee or the court.

Under Chapter 7, you may claim certain of your property as exempt under governing law. In exchange for receiving a discharge of your unsecured debts, you agree to surrender all “non-exempt” property. A trustee may have the right to take possession of property that is non-exempt and use the sale proceeds to pay your creditors.

A Chapter 7 bankruptcy may discharge most, if not all, of your debts. However, you may still be responsible for most taxes and student loans; debts incurred to pay nondischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs.

In almost 25 years of practice , our experienced consumer bankruptcy attorneys have helped hundreds of Texans get the “fresh start” they deserve. If you are considering a Chapter 7 petition, we will carefully explain the debts that can and cannot be discharged, and what property you can and cannot claim as exempt.

Situations where Chapter 7 may help:

1. Your income is below the median level for Texas residents. In order to qualify for Chapter 7, you have to pass the “means test”. The purpose of this test is determine whether or not you have the ability to pay some significant portion of your unsecured debts. If you are below the median income for Texas, you do not have to do any means testing. If you are above the medium income level, you have to take the means test to make sure you do not have a lot of disposable income left over after your reasonable living expenses are deducted from your income.  For most people the means testing is not a problem and they are allowed to file Chapter 7. An experienced bankruptcy attorney will be able to run this test to determine your eligibility for Chapter 7.

2. You do not owe any secured debts. If you do not have much secured debt, a Chapter 7 may be best since there are no secured debts needing to be restructured. If you have only unsecured debt, Chapter 7 will allow you to completely discharge most such debts with the exception of things like government guaranteed student loans, child support, and taxes less than 3 years old.

3. You owe secured debts but you are current on them. A Chapter 7 may be best. If you are comfortable that you can afford the payments on the secured debts you have, you can keep these secured debts (like a house or car loan) in a Chapter 7 by signing a reaffirmation agreement with the creditor. Chapter 7 Bankruptcy will allow you to discharge other unsecured debts like credit cards or medical bills (subject to the exceptions stated above like child support or student loans).

4. You owe back income taxes that are more than 3 years old.  A Chapter 7 can help. Income taxes more than 3 years old can generally be discharged. If the taxes were not filed on time, they can still be generally discharged if they have been filed for at least 2 years and have been assessed for more than 240 days.

5. You owe a lot of unsecured debt like credit cards or medical bills. Chapter 7 is a good way to discharge out general unsecured debts like credit cards and medical bills. Accrued and unpaid medical expenses from serious illnesses are a leading cause of bankruptcy filings.