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Chapter 7 bankruptcy: Am I eligible?

Californians who are confronted with overwhelming debt that they are not going to be able to pay back will frequently wonder how they will get back on stronger financial ground and move on with their life. While the word "bankruptcy" might elicit an image of someone who has simply decided not to pay their debts, it is a solid and legal way to clear debts and start over. There are certain aspects of the process that must be understood before attempting a Chapter 7 bankruptcy. One of the basics is the eligibility requirements.

For a person to qualify for Chapter 7, it must be an individual, a partnership, a corporation or another kind of business entity. There is a means test to determine if the debtor qualifies. The amount of debt owed is largely irrelevant as is the debtor's solvency. What is important is meeting the basic criteria for filing such as not having filed for Chapter 7 in the previous 180 days in a case that was dismissed for a variety of reasons. Those reasons include willfully failing to appear before the court or to comply with the orders of the court. If the debtor dismissed the case voluntarily after creditors sought relief from the bankruptcy court to recover property upon which they held liens, then this too stops a debtor from filing for Chapter 7.

The debtor is required to take part in a credit counseling course from an approved agency within 180 days before filing. A debt management plan might be created within that credit counseling. If so, this needs to be filed with the court. The idea behind Chapter 7 or any other bankruptcy chapter is to give the debtor a chance to start over again, otherwise known as a "fresh start." In general, a Chapter 7 will result in a discharge of the debts, but it is not automatic. Certain debts cannot be discharged. If there is a lien on a property, the bankruptcy will not clear that.

People who are concerned about their finances and are thinking about bankruptcy should be aware of which chapter is right for them and what the process entails. Having experienced and caring legal assistance with the entire process is vital. Contacting a lawyer who understands all aspects of bankruptcy is the first step.

Source: uscourts.gov, "Chapter 7 -- Bankruptcy Basics -- Chapter 7 Eligibility," accessed on July 3, 2017

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