Asian Journal- The Filipino-American Community Newspaper

Question: What is Chapter 7 bankruptcy?

Answer: Chapter 7 bankruptcy is a legal process that will result in the cancellation or discharge of a person’s dischargeable debts. A person here can be an individual or a married couple. After the conclusion of a Chapter 7 bankruptcy proceeding, a person will be declared free from debts except non-dischargeable debts and secured debts that he intends to keep.

Answer: No because there is a test required before a filing is allowed. On October 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). A salient feature of this law is the introduction of a Means test. It is a test to determine if a person has enough disposable income to fund a payment plan. To arrive at the Means test, the monthly income of the debtor is determined by getting the average income using his or her last six months’ income. If the average monthly income is less than the median family income in the debtor’s county and state for a family similar in size to the debtor, that debtor will be found NOT have enough disposable income. The petition for Chapter 7 bankruptcy will NOT be presumed as an abuse of the bankruptcy system and it will be allowed to proceed with the voluntary petition.

On the other hand, if the average monthly income of the debtor is greater than the median family income in the county and state he or his family resides and after further calculations, the debtor is found to have enough disposable income left, the petition for Chapter 7 bankruptcy of the debtor will be dismissed by the court. However, the debtor may convert his Chapter 7 bankruptcy to a Chapter 13 bankruptcy filing. In contrast to a Chapter 7 bankruptcy, a Chapter 13 bankruptcy will require the debtor to pay his or her creditors under a three to five year payment plan based on his disposable income. After the three to five year payment plan is completed, the debtor in a Chapter 13 bankruptcy filing will be discharged from his or her dischargeable and unsecured obligations.

Answer: A person who intends to file for Chapter 7 bankruptcy must undergo credit counseling from a credit counseling agency approved by the US Trustee office. The purpose of the counseling is to determine whether it is possible to settle the debts without filing for bankruptcy. Proof that the debtor participated in credit counseling must be submitted together with the petition for Chapter 7 bankruptcy.

Note: This is not a legal advice.