Erase Debt: The Chapter 7 Bankruptcy Option

If you are so deep in debt that you do not have a chance of clearing, it may be time for you to erase your debt by declaring Chapter 7 bankruptcy. Declaring bankruptcy is the only way to erase debt without paying it off completely. This is the last option, of course, as there are severe implications and restriction on your life. The new bankruptcy laws have placed restrictions on filing for bankruptcy, but it is still possible to use the bankruptcy law to erase your debt.

Changes to the Bankruptcy Laws

Before you can erase your debts by having them discharged in bankruptcy court, you must complete an approved Financial Management Course. The U.S. Trustee program maintains a list of approved courses and you can take some of the courses online.

Compulsory Credit Counseling Course

The new bankruptcy law now requires every individual filing for Chapter 7 bankruptcy to complete a credit-counseling course within six months of filing. The U.S. Trustee program maintains a list of qualified credit counselors who are authorized to provide the course and certify your compliance. Many courses are also offered online, again making it very convenient for you to complete the course.

Means Testing

Under the new bankruptcy laws, debtors must pass a means test before the courts allow them to erase debt. The means test is based on the annual income of the individual or family that is declaring bankruptcy and it is normalized according to family size. The government also recognizes the economic disparity in different parts of the country, and it applies a different means test standard for every state.

For example, debtor in the state of Mississippi, the median income is $30,424, for a single, while the median income is $48,030 for a single in Washington.

Even if your income is higher than the median income in your state, you may still be able to avail yourself of bankruptcy protection and use it to erase your debt. Consult you bankruptcy lawyer for details.

Chapter 7 Bankruptcy: A Fresh Start

Chapter 7 bankruptcy is not the end. Instead it is considered a fresh start for the debtor. The debtor's non-exempt properties are all handed over to the bankruptcy trustee. The trustee will work out a settlement plan, which may include liquidation of assets. Since bankruptcy filers seldom have any assets to speak of, there may be no property for disposal. The debts are normally discharged within four to six months. Hence, for many people, Chapter 7 bankruptcy may be the best option to erase debt.

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