Chapter 7 bankruptcy is the most well-known of the bankruptcy options, often known as the “liquidation” option. The filing will sell off almost all of your assets to pay back creditors. It is a viable option to start over with a clean financial slate for those who qualify, but care must be taken prior to filing to ensure that your property is protected to the greatest extent possible.
Passing the Bankruptcy Means Test
The Means Test compares takes your household income for the six full months prior to filing, annualizes it, and compares it to the state’s median family income for a family of your size. If your monthly income is above the means threshold (ranging from $46,689 to $122,180 in Arkansas, depending on family size), then you will generally not qualify for Chapter 7. This test is required if more than half your debt comes from consumer purchases rather than taxes, business debt, or tort debts. If your debt is primarily non-consumer, you are not subject to the means test.
Reviewing Your Budget and Protecting Your Property
If you qualify under the Means Test, the next step is to develop your monthly budget, which includes your monthly income from all sources and your monthly expenses. If you have a surplus each month after paying your regular monthly bills and household expenses, you may not qualify for a Chapter 7 despite passing the Means Test. The bankruptcy court and trustee may decide that you should pay that surplus income each month into a Chapter 13 plan so that your creditors receive a payment.
If your budget works out, the next step is to ensure that your equity in your real and personal property is protected to the greatest extent possible. Our goal is to protect all of your equity in your property so that the Chapter 7 trustee has no assets to liquidate. If it is not possible to protect your property, either you will have to surrender the assets that were not protected to the Chapter 7 trustee for liquidation or pay the value of those assets to the Chapter 13 trustee over time (instead of filing a Chapter 7).
Legal Status to File
Any individual or entity may file a Chapter 7. Those persons who do not qualify (for whatever reason) are not allowed to remain in the Chapter 7 and must either dismiss their cases or convert their cases to a different, more appropriate Chapter for their situation.
Other Qualifications
Additionally, individuals cannot have received a Chapter 7 discharge in a case filed within the last eight years or a Chapter 13 discharge in the last six years.
Individuals who file for bankruptcy protection must obtain credit counseling prior to the filing of the case and must take a financial management course after filing and prior to receiving a discharge.
If you’re considering bankruptcy in Arkansas and are confused about which option is right for you, know that you have a trusted resource in Natural State Law. Our firm will help you sort through each option and determine which will put you on a path towards a clean financial slate. Call (501) 916-2878 to schedule a free consultation.