Bankruptcy

=====Chapter 7=====
{{main|Chapter 7, Title 11, United States Code}}
Often called "straight bankruptcy" or "simple bankruptcy", a Chapter 7 bankruptcy potentially allows debtors to eliminate most or all of their debts over a period of as little as three or four months. In a typical consumer bankruptcy, the only debts that survive a Chapter 7 are [[student loan]]s, [[child support]] obligations, some tax bills, and criminal fines. Credit cards, pay day loans, personal loans, medical bills, and just about all other bills are discharged.

In Chapter 7, a debtor surrenders non-exempt property to a bankruptcy trustee, who then liquidates the property and distributes the proceeds to the debtor's unsecured creditors. In exchange, the debtor is entitled to a discharge of some debt. However, the debtor is not granted a discharge if guilty of certain types of inappropriate behavior (e.g., concealing records relating to financial condition) and certain debts (e.g., spousal and child support and most student loans). Some taxes are not discharged even though the debtor is generally discharged from debt. Many individuals in financial distress own only exempt property (e.g., clothes, household goods, an older car, or the tools of their trade or profession) and do not have to surrender any property to the trustee.<ref name="C7Basics"/> The amount of property that a debtor may exempt varies from state to state (as noted above, Virginia and Maryland have a $1,000 difference.) Chapter 7 relief is available only once in any eight-year period. Generally, the rights of secured creditors to their collateral continues, even though their debt is discharged. For example, absent some arrangement by a debtor to surrender a car or "reaffirm" a debt, the creditor with a [[security interest]] in the debtor's car may repossess the car even if the debt to the creditor is discharged.

Ninety-one percent of US individuals who petition for relief under Chapter 7 hire an attorney to file their petitions.<ref name="uscourts.gov">{{cite web|url=http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BAPCPA/2013/Tables2A-2X.pdf |title=BAPCPA Table 2A. U.S. Bankruptcy Courts – Income and Expenses Reported by Individual Debtors in Chapter 7 Cases With Predominantly Nonbusiness Debts Commenced During the 12-Month Period Ending December 31, 2013, as Required by 28 U.S.C. 159(c) |access-date=2014-12-15 |url-status=dead |archive-url=https://web.archive.org/web/20141215234421/http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BAPCPA/2013/Tables2A-2X.pdf |archive-date=2014-12-15 }}</ref> The typical cost of an attorney is $1,170.00.<ref name="uscourts.gov"/> Alternatives to filing with an attorney are: filing pro se,<ref>{{cite web|url=http://www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms.aspx|title=Bankruptcy Forms|website=uscourts.gov|access-date=7 May 2018|url-status=live|archive-url=https://web.archive.org/web/20150505070637/http://www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms.aspx|archive-date=5 May 2015}}</ref> hiring a non-lawyer petition preparer,<ref>{{cite news|title=Preparing Petitions: It Irks the Lawyers, But Is It Lawyering?|author=Adam Liptak|url=https://www.nytimes.com/2002/08/13/us/preparing-petitions-it-irks-the-lawyers-but-is-it-lawyering.html|newspaper=The New York Times|date=August 13, 2002|url-status=live|archive-url=https://web.archive.org/web/20170624170126/http://www.nytimes.com/2002/08/13/us/preparing-petitions-it-irks-the-lawyers-but-is-it-lawyering.html|archive-date=June 24, 2017}}</ref> or using online software to generate the petition.

To be eligible to file a consumer bankruptcy under Chapter 7, a debtor must qualify under a statutory "means test".<ref>{{Cite news|url=http://pewlaw.com/bankruptcy/arizona-bankruptcy-means-test/|title=Arizona Bankruptcy Means Test - Pew Law Center|newspaper=Pew Law Center|language=en-US|access-date=2017-01-08|url-status=live|archive-url=https://web.archive.org/web/20170108190251/http://pewlaw.com/bankruptcy/arizona-bankruptcy-means-test/|archive-date=2017-01-08}}</ref> The means test was intended to make it more difficult for a significant number of financially distressed individual debtors whose debts are primarily consumer debts to qualify for relief under Chapter 7 of the Bankruptcy Code. The "means test" is employed in cases where an individual with primarily consumer debts has more than the average annual income for a household of equivalent size, computed over a 180-day period prior to filing. If the individual must "take" the "means test", their average monthly income over this 180-day period is reduced by a series of allowances for living expenses and secured debt payments in a very complex calculation that may or may not accurately reflect that individual's actual monthly budget. If the results of the means test show no disposable income (or in some cases a very small amount) then the individual qualifies for Chapter 7 relief. An individual who fails the means test will have their Chapter 7 case dismissed, or may have to convert the case to a Chapter 13 bankruptcy.

If a debtor does not qualify for relief under Chapter 7 of the Bankruptcy Code, either because of the Means Test or because Chapter 7 does not provide a permanent solution to delinquent payments for secured debts, such as mortgages or vehicle loans, the debtor may still seek relief under Chapter 13 of the Code.

Generally, a trustee sells most of the debtor's assets to pay off creditors. However, certain debtor assets will be protected to some extent by bankruptcy exemptions. These include Social Security payments, unemployment compensation, limited equity in a home, car, or truck, household goods and appliances, trade tools, and books. However, these exemptions vary from state to state.