Know The Basics Before You Go Ahead And Declare Bankruptcy Under Chapter 7

If your debts have become unmanageable and there is no other alternative to get your finances back on track, you may be considering filing a petition to get yourself declared as bankrupt. It is a drastic step and you are strongly recommended to do a thorough review and analysis of your financial situation before you go ahead and declare bankruptcy. It should be your last option, not the first choice. Following are some of the basic things that you must be well aware of before you go ahead and file your petition.

The Most Common Reasons Why People File For Chapter 7 Bankruptcy

Some of the most common reasons why people file for bankruptcy under chapter 7 include large unexpected expenses, marital problems, seriously overextended credit, and large medical expenses. As per a recent report published by Harvard University, more than 50% of the bankruptcy cases in the United States of America happen because of huge medical bills. Every year, over two millions people get bankrupt in this country just because of illness and medical bills. If we include the number of dependent individuals that include children, the figure goes above seven million.

Have The New Laws Made It More Difficult To File For Chapter 7 Bankruptcy?

In order to be eligible to declare bankruptcy under chapter 7, you must now meet some more requirements that have been added with the introduction of the new bankruptcy laws. These requirements include a mandatory credit counseling and passing a means test. You can qualify for this type of bankruptcy only if your regular monthly income (after deducting the essential monthly expenses) is less than the median income in your state for a family of same size. If there are three members in your family, your income will be compared to the median income of the families with three members in your state. The mandatory credit counseling requires you to work with a state-approved credit counselor who reviews your financial situation and then issues a certificate explaining whether filing under chapter 7 is the right option for you or you should try filing under chapter 13. However, in practical, despite these additional requirements, people are still able to file under chapter 7 with very little extra effort with the help of experienced attorneys who have specialization in this field of law.

Can You File For Chapter 7 Bankruptcy For A Second Time?

If you want to declare bankruptcy again, you will have to wait for eight years since the date of previous filing.

Are The Debts For Federal Income Taxes Dischargeable Under Chapter 7 Bankruptcy?

In general, the answer is no, but there can be certain exceptions. Even debts for federal income taxes may be allowed to be discharged if the following five conditions apply.

1. You have passed the 240-day rule. Things will depend on whether the Internal Revenue Service (IRS) has done an assessment of the income tax debt outstanding in your name 240 days before the date of filing or not.

2. Two years have passed before the date of filing since you filed the last tax return.

3. The outstanding debts for federal taxes are more than three years old from the date of bankruptcy filing.

4. You have not committed any fraud or willful evasion, such as use of false social security return. If you intentionally made attempts to evade paying taxes, the debts will not be discharged under bankruptcy.

5. Only income taxes can be discharged on the basis of above conditions. There is no way to eliminate other taxes in bankruptcy, such as fraud penalties, Trust Fund Recovery Penalty, or payroll taxes.

Custom Search

Tags: , ,
Posted in Bankruptcy, Bankruptcy Basics | 1 Comment »

One Response to “Know The Basics Before You Go Ahead And Declare Bankruptcy Under Chapter 7”

  1. Peter says:

    The article gives a very clear picture of the process bankruptcy. Any individual who is preparing to file a petition for getting bankrupt must visit this section. The section of bankruptcy has very knowledgeable articles which can give you an honest opinion about your decision of filing a petition. It is true that no body wants to be declared as bankrupt. It is only the circumstances which push the person to this traumatic path. It is very easy to think about it but equally tough to go through the process. Generally people with multiple debts decide to go for it but it is not a right decision. It should be the last option when you have no other alternative left. Because the new laws have made it difficult to file for bankruptcy, you have to attend a credit counseling which is mandatory. Debts taken for income taxes can not be discharged except five conditions only. These are basic things which make whole process more complicated but you can go through it with an experienced attorney and can start a new life again. After bankruptcy, some people think that life has come to an end but it is not a right attitude.

Leave a Reply

You must be logged in to post a comment.