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Chapter 7 bankruptcy is sometimes called "liquidation" bankruptcy, it cancels your debts. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".
Check Your Eligibility Criteria
Not every person who is seeking of getting debt free by filling bankruptcy will be eligible to file under chapter 7. You won’t be able to use Chapter 7 if you already received a bankruptcy discharge in the last six to eight years. If you remaining income after subtracting what you will spend on certain allowed expenses and monthly payments for child support, tax debts, secured debts such as a mortgage or car loan, and a few other types of debts is sufficient to support the payment under chapter 13 repayment plan, then, you will not allow to file bankruptcy under chapter 7.
The first step to check your eligibility of filling chapter 7 bankruptcy is to measure your average income for past six months against the median income for a family of your size in your state.
Once you have calculated your income, compare it to the median income for your state (You can find the median income by state information from www.usdoj.gov/ust; click the Mean Testing Information). If your calculated average income is less than or equal to the median income of your state, you can file under chapter 7 bankruptcy, else you need to go through another eligibility test, called "Mean Test".
The "Mean Test" based on the outcome from calculated disposable income. To get your disposable income, calculate your average monthly income as describe in above paragraph. From that amount, you subtract both of the following:
If your total monthly disposable income after subtracting these amounts is less than $100, you pass the means test, and will be allowed to file for Chapter 7. If your total disposable income is more than $166.66 then your will automatically force to Chapter 13 unless your have a solid reason with proven facts that you are facing a special circumstances that aren't reflected in the calculations above. You may be allowed to file under chapter 7, but this is a case by case basic.
What if you disposable income fall in between $100 and $166.66? If your disposable income is in this range, you must figure out whether what you have left over is enough to pay more than 25% of your unsecured, non priority debts such as credit cards, student loans and medical bills. If not, you pass the means test, and Chapter 7 remains an option else you have flunked the means test, and will be prohibited from using Chapter 7.
Bankruptcy Costs in Time and Money
The whole Chapter 7 bankruptcy process takes about four to six months, costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.
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