Chapter 7 Bankruptcy

 Chapter 7 is often referred to as  the liquidation bankruptcy.  It most cases, Chapter 7 allows you to  eliminate your unsecured debts such as credit cards and medical bills.   However, certain unsecured debts such as taxes, child support and  student loans are not dischargable in bankruptcy. 

Chapter 7 does allow the debtor to continue to pay on secured debts such  as house payments and car payments.  In fact, retaining the secured  debt is mandatory if the debtor wishes to retain the property securing  the debt.  If the debtor is willing to "surrender" the collateral, they  can eliminate the secured debt.

In  most bankruptcy cases, all the assets of the debtor(s) are exempt.   "Exempt" means the assets are protected.  Exemptions vary from state to  state.  Both Texas and Arkansas offer a fairly generous list of  exemptions.  Keep in mind, an exemption does not avoid a secured debt.

In order to qualify for a Chapter 7, the debtor(s) must pass the "Means  Test".  The "Means Test" is a comparison of the debtor's gross household  income versus the average gross household income of a similar-sized  family for the state in which the debtor resides.  Being over median  income could force a debtor to file a Chapter 13 bankruptcy.