Bankruptcy can be an overwhelming and traumatic process, resulting in significant heartache. However, it can also give you the fresh start you need while eliminating your financial burdens. A Chapter 7 bankruptcy is commonly referred to as “liquidation” where some of your assets are sold to pay creditors. Some assets may be exempt to creditors and you may be able to keep certain secured debts.

Chapter 7 Bankruptcy Eligibility

In order to file a Chapter 7 Bankruptcy, an Indiana resident must first pass the Indiana means test. In some cases where your income is lower than the Indiana median income for the number of members in your household, you are excused from the test and can automatically file for Chapter 7. Other people who are exempt from the means test are those who have mostly incurred non-consumer debts and disabled veterans who incurred their debts while on active duty.

If your income is higher than the median income for Indiana, then you must pass the means test to make sure that you don’t qualify for a Chapter 13 bankruptcy instead. The means test requires an Indiana resident to thoroughly calculate total income and expenses to determine how much income they have under bankruptcy law to pay unsecured debtors under a Chapter 13 bankruptcy.

In a Chapter 13 bankruptcy, a debtor (person filing for bankruptcy) agrees to a 3 to 5-year plan to pay back some or all of their debts using future income. If a debtor is able to pay back the debt according to the repayment plan, the debtor’s dischargeable debt will be exonerated. The main difference between the two is that the debtor has some disposable income to pay off some of their debts in a Chapter 13, whereas a debtor who files a Chapter 7 usually does not.

Property Exempted from Bankruptcy

In Indiana, certain types of property are exempted from being liquidated or sold to pay creditors. More importantly, a person will be able to retain this property after they file bankruptcy. Some of these may include:

·      Real or personal property that is used for residential purposes;

·      Life insurance policies;

·      Pensions;

·      An award from a lawsuit; and

·      Property of a business partnership.

Just as the above types of assets may be exempt from bankruptcy, there are some assets that are non-dischargeable.

Non-Dischargeable Debts

Under federal law, after filing for Chapter 7 bankruptcy, a person may still be required to repay the following debts:

·      Debts for family support, such as child support and alimony;

·      Student loans; and

·      Penalties for violating the law.

Please note that a creditor may challenge a debtor’s request to discharge certain debts, and a bankruptcy judge can declare the debt non-dischargeable.

Contact an Indiana Bankruptcy Attorney

If you are contemplating filing for bankruptcy in Indiana, contact a knowledgeable bankruptcy attorney who can help advise you of your legal rights. A Chapter 7 bankruptcy is not right for everyone and Chris Arrington can go over your financials to help you determine whether a Chapter 7 or Chapter 13 bankruptcy is right for you.