If you are seeking relief from consumer debt then filing Chapter 7 Bankruptcy would be beneficial for you. The changes to bankruptcy law imposed in 2005 restrained individuals from filing under Chapter 7 liquidation bankruptcy. This bankruptcy law forced the individuals to file under Chapter 13 instead of Chapter 7 liquidation in cases.

A court-appointed bankruptcy trustee liquidates a debtor’s taxable property after filing under Chapter 7. The amount collected after the sale is disbursed among the creditors by the bankruptcy trustee. A debtor is discharged permanently from the liability of his debts but in return he loses his taxable property as it goes for liquidation.

The wide range of exemptions available under Chapter 7 Bankruptcy:

The following things are exempted from liquidation:

1) Insurance for the unemployed

2) Pensions and IRAs Plans

3) Alimony and child support

4) Equity less than $ 17, 425 in homes

5) Items up to $9,300 used for personal purpose

6) Ornaments and Clothes

7) Cars and other public benefits

 

Federal law also provides for a wild card exemption. A debtor can save his property from liquidation after filing under Chapter 7 bankruptcy if he incorporates his property under this wild card exemption. 

 

The following assets can be included under wild card exemption:

 

a) Taxable property: The taxable property would be exempted up to $11,200 according to the total dollar amount of the wild card exemption. If the person indebted tries to save his non-exempted assets under a wild card exemption then the property would be exempted up to the wild card dollar amount.   

b) Property exempted partially:  The assets are excused up to a certain amount under the Federal law. The wild card exemption can compensate for the property that has not been exempted and grant permission to the debtor to keep the property.

 

c) Cash and bank fund exemption: With the help of the wild card exemption the debtor can exempt his cash and bank funds.

States where wild card exemption can be used:

• Arkansas

• District of Columbia

• Hawaii

• Massachusetts

• Michigan

• New Jersey

• New Mexico

• Pennsylvania

• Texas

• Washington

 

Pursuant to the Bankruptcy Code, the consumer who decides to file under any bankruptcy provision must under go credit counseling procedures. This counseling must be approved by the non-profit budget and credit counseling agency. Six months before a debtor files for bankruptcy he must receive credit counseling. Approved bankruptcy credit counseling agencies can be found on the US Trustee’s website. 

 

An individual needs to under go a means test before being allowed to file for a Chapter 7 liquidation.  This is a new provision as of the major 2005 re-writing of the bankruptcy law. The debtor needs to fill out the official Statement of Current Monthly Income and Means Test Calculation form. The debtor's annual income is compared with the median family income for his state. If the debtor’s income is less then he is likely to pass the means test and can proceed with Chapter 7 bankruptcy. If not, then Chapter 13 is the most likely destination. 

 

Chapter 7 bankruptcy provides a means for debtors to liquidate their current debts completely. Qualifying for it is key. If you can get past the means test, the ability to liquidate your debts entirely can give you the fresh start you need. This is particularly true given the exemptions and wild card options available.

Kevin Craig is a financial writer associated with Oak View Law Group. He has helped many debt ridden people with useful advices.