Chapter 7 Bankruptcy: What you need to know before Filing a Bankruptcy Petition
If you or your business are going through financial difficulties and you wish to file for bankruptcy, you may choose to do so under the bankruptcy code. The Bankruptcy Reform Act of 1978, often referred to as the Bankruptcy Code is a federal law and must be read along with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Depending on the type of financial difficulties you or your business are facing, you would have to file a bankruptcy petition for liquidation, reorganization, or debt adjustment.
In most cases, when someone refers to bankruptcy, they are most likely referring to the liquidation of assets, which happens when an individual or business petitions under Chapter 7 of the Bankruptcy Code. This halts all creditors from chasing you to recover the debts you or your business owes to them.
A Chapter 7 Bankruptcy petition declares an individual or an entity's inability to repay debts. Consequently, it would then result in the liquidation of non-exempt assets of the petitioner. Although the procedure may seem straightforward, it is always recommended that you hire a bankruptcy lawyer with a proven track record.
When should you file for bankruptcy under Chapter 7?
- Your debts exceed roughly half your annual income.
- If your debts are so high that it would take five years or more to repay the debt despite extreme measures.
- Your debt is causing friction in your relationships and affecting the various aspects of your life.
- You do not have any disposable income.
- Your monthly income is far below the average monthly salary in your state.
The above-mentioned scenarios indicate the inability to repay the debt, with little or no room for reorganization. In such cases, you may opt to file for a petition for liquidation under Chapter 7 of the Bankruptcy Code. Before filing, you should consult an expert Folsom bankruptcy attorney, who will help you identify which debts can be discharged under this petition. The attorney would also help you determine your exempt and nonexempt assets and help you plan the best course of action.