Chapter 7
Chapter 7 allows you to eliminate unsecured debt such as credit card debt, medical bills, and auto repossessions; however, non-exempt assets are not protected and they can be sold by the trustee. Your secured creditors (those with liens) such as mortgage companies and car companies are not obligated to work with you. These creditors can take back vehicles that are financed or can foreclose on mortgages if you do not continue with payments. However, they cannot act if you remain up-to-date on payments.
The Means Test
To qualify for relief under chapter 7 of the Bankruptcy Code, you may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b), that passes the means test.
If the debtor’s “current monthly income” (1) is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $7,025. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor’s consent) or will be dismissed. 11 U.S.C. § 707(b)(1).