A Chapter 7 bankruptcy is a bankruptcy case in which we give the debtor, the person who owes all the money, a fresh start, a new beginning. It essentially wipes out or erases the debt that the debtor has. In a Chapter 7, it is really to give people a new beginning, it is to discharge the debt, that is the legal term that we use, but essentially it erases debt, the majority of it. There are always some exceptions, there are possibilities in which you can reaffirm debt or the debt will continue on, some debt is what we call non-dischargeable meaning that it does not go away even in a Chapter 7 bankruptcy case.
Who Can Qualify For A Chapter 7 Bankruptcy?
There is a set of median income standards that are used to determine whether you qualify or not for filing a Chapter 7 bankruptcy. In the bankruptcy case, it does not matter how much debt you have, what matter is how much your income has been averaged over the last six months if you are an individual. For an individual to file bankruptcy, you really ought to meet with an attorney or you need to go to the IRS website and find out what the median income is for a household of your size in your particular county to determine whether you are above or below the median income. If you are below it, you qualify and you are on your way. If you are above it, you have to go through what is called the Means Test, which is a very complicated form that the government’s created to determine whether or not you qualify for filing a Chapter 7 case.
What Types Of Debt Are Generally Non-Dischargeable In Utah?
The non-dischargeable debts are things like child support, alimony, student loan debt and any debt that you owe for like a crime that you may have committed. So for example, a court awarded restitution or a court awarded fine. That is essentially it. Those are the ones that do not get discharged in a chapter 7 bankruptcy essentially. I mean there are always a couple of random weird things.
Can Taxes Be Discharged In A Bankruptcy?
Some taxes are discharged in a Chapter 7 case. The tax has to be a personal income tax, so like reported on a 1040 return. It has to be at least three years and a day old from the date of assessment. If we have just finished our 2015 taxes hopefully because we are here in April, so if you go back three years from the 2015 taxes, that means 2012 taxes. If you have filed your 2012s on time and they were assessed, let us say, today, you would need to not be able to file until tomorrow and then you could discharge anything from 2012 tax returns and before. The rules are a little complicated, but that is essentially how it works.
My rule of thumb is if your tax debt is four years old, you are good. But that is a general rule because it is very specific and technical. If it is a business debt that is owed on taxes for failure to pay payroll taxes, for example, those are non-dischargeable. There are other types of taxes that just simply do not go away. I hate to say it, but anytime there is a tax debt, you really want to review that with an attorney and the reason is because it is complicated. I just went through the general rule for discharging personal tax debt but there could be taxes assessed that you are going to be stuck with and have to pay and in those cases, you need to look at the different types of bankruptcy.
What Assets Am I Able To Retain In A Chapter 7 Bankruptcy?
In Utah, there is what we call exemptions. Exemptions are the statutes in the state of Utah that allow you to keep certain belongings that are yours. Things like your clothes, your bed, your pillow and blankets, your vacuum cleaner, all those things are exempt under state law. Additionally, you will have your bigger items like your car or your truck, there is a $3,000 vehicle exemption in the state of Utah. What that essentially means is that if your car or a vehicle is worth $3,000 or less or there is $3,000 or less of equity in that vehicle, the trustee in a Chapter 7 case is not going to do anything with your car and you are going to be able to keep it.
As far as the house is concerned, you are allowed $30,000 of equity in your house under what we call a Homestead Exemption. If you are married and you are a couple that would give you $60,000 because you each get $30,000 of homestead exemption. There are some other random exemptions out there too but essentially the rule of thumb is that if you have something and it is worth $500,000 or less, there is a very high likelihood that the trustee is not going to be interested in that item.
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