Chapter 7 bankruptcy is known as "Liquidation" or "Fresh Start" bankruptcy. This is because most debtors do not have to pay any money to creditors under this chapter. A debtor's unsecured debts are wiped out completely, such as credit cards, medical bills and unsecured personal loans. However, secured loans, such as a house mortgage or car payment are left in tact unless you decide to surrender the collateral property to the creditor.
Am I Eligible for Chapter 7 Bankruptcy?
A debtor is eligible for chapter 7 bankruptcy if they make less than the state median income for their family size. Even if a debtor or debtors are close or just above the state median income, it is possible to do what is called a "means test" that can further qualify a family for chapter 7 bankruptcy under the Title 11 of the United States Code. The means test takes into account your family's expenses, children's needs and cost of living. If you do not make under the state median income or qualify under the means test, you may not file for chapter 7 bankruptcy, although you still may be eligible to file for a chapter 13 bankruptcy.
