Answers to Your Questions About Chapter 7 Bankruptcy in Pennsylvania
Although most people think of filing bankruptcy as one single choice, bankruptcy actually comes in a variety of methods (referred to as chapters). One of the most popular choices is Chapter 7. What does Chapter 7 bankruptcy involve? And what do you need to know before pursuing it? Here are a few answers to your questions.
How Are Debts Discharged in Chapter 7?
Chapter 7 is the type of bankruptcy most people think of when they envision it. It's the liquidation of certain assets for use to pay off (or down) certain debts. After the value of these assets has been exhausted, the remaining debts are discharged (or forgiven).
This method of discharge is in contrast to Chapter 13, which doesn't liquidate assets but instead sets up a repayment plan for all or part of your debts over three to five years.
What Debts Can or Can't Be Discharged?
As with all types of bankruptcy, not every debt is eligible for Chapter 7 discharge. Income taxes can be included, for instance, but only if they qualify in terms of age of the debt and due date of the original taxes. Other taxes — such as sales tax payable or property tax — generally cannot be included in the discharge.
Commonly, ineligible debts include many student loans, support orders, court fees or penalties, and some personal injury debts. In addition, if you accidentally leave off any debts from your bankruptcy forms, these cannot be added in after the filing.
However, most unsecured debts that claimants carry are eligible for discharge. This includes credit cards, signature (or personal) loans, medical debt, loans from family members, and short-term loans. Even if not all your debts can be discharged, relief from these eligible debts can provide the help you need.
Can You Keep Your Stuff?
Most people considering bankruptcy are anxious to know if they can keep any of their assets. The answer is yes. There are rules about which assets must be liquidated and what you can keep. These rules state what is exempt property that you can request to keep.
What is exempt property? Generally, this includes retirement accounts, home equity, vehicle equity, limited home goods, tools of your trade, and some insurance policies. Most of these exemptions, though, have a dollar limit.
The federal rules provide a list of specific exemptions (and amounts), although many states also provide their own list. The federal exemption for your home, for example, is $25,150 while Pennsylvania doesn't provide this exemption. The state does, though, allow you to choose whichever set of exemptions is in your favor.
What Might Prevent You From Filing Chapter 7?
No form of bankruptcy is guaranteed to all debtors. Chapter 7 claimants must qualify to use it. The biggest qualification is the income or means test. Your income usually must be below the median amount for your region. A means test is also used to determine if your income is high enough that the court expects you to use Chapter 13 (repayment) instead of Chapter 7. You must also not have claimed bankruptcy recently.
Do You Need Help Filing Chapter 7 Bankruptcy?
So, does Chapter 7 bankruptcy seem like a viable option to get the relief you need? If so, begin by consulting an experienced bankruptcy attorney in your state. Chapter 7 rules can be complicated — especially if you have unusual or valuable assets, want to keep the most assets possible or have debts that may not be eligible. And, unfortunately, errors can cause permanent damage to or even dismissal of your case.
Kalasnik Law Office has aided Pennsylvania residents for more than 15 years in choosing a bankruptcy chapter and deciding how to proceed with assets and debts. Call today to learn how we can help you with all your Chapter 7 needs.