Chapter 7 bankruptcy is a type of “liquidation” bankruptcy that allows a debtor to discharge all debts that are dischargeable under the U.S. Bankruptcy Code. In order to have debts discharged, all of the debtor’s non-exempt assets are liquidated so that creditors can be repaid a portion of what the debtor owes. There are many different reasons that an individual or a small business may file for Chapter 7 bankruptcy, and we want to provide you with some real life examples of Chapter 7 bankruptcy in Iowa.
Medical Debt and Chapter 7 Bankruptcy
As an article in The Balance reports, medical debt is one of the most common reasons that a consumer will file for Chapter 7 bankruptcy. Indeed, in 2017 alone, Americans ended up incurring costs of $3.4 trillion for medical care, and that figure is only expected to rise in the coming years. To be sure, by the year 2023, experts predict that the average healthcare cost per person will reach nearly $15,000.
Here is an example of how a consumer ends up filing for Chapter 7 bankruptcy to discharge medical debt: Jane and her husband, John, retired recently and had planned to live a frugal lifestyle with the savings they managed to accumulate during their working years. However, John had an unexpected medical crisis, and he required regular treatment for about one year. While Jane and John have had health insurance throughout John’s medical crisis, they paid a significant amount of out-of-pocket expenses due to deductibles and managed to incur more than $100,000 in medical debt. Since their retirement income largely is exempt, they decided to file for Chapter 7 bankruptcy to discharge John’s medical debt.
Passing the Means Test for Chapter 7 Bankruptcy
Many consumers who make the decision to file for Chapter 7 bankruptcy do not realize that they will need to pass the “means test” in order to be eligible to have their debts discharged. If a consumer cannot pass the “means test,” then she or he may need to consider another type of bankruptcy, which is most often Chapter 13 bankruptcy. As an article in Credit Karma explains, the “means test” looks at a consumer’s income, assets, and expenses to determine whether a consumer’s income is low enough that she should be able to file for Chapter 7 bankruptcy. Taking the “means test” requires filling out multiple forms.
For example, Ellen wanted to file for Chapter 7 bankruptcy after incurring more than $100,000 in credit card debt. She took the “means test,” and the “means test” showed that Chapter 7 bankruptcy was not appropriate. Ellen filed for Chapter 13 bankruptcy instead, which allowed her to reorganize her debts.
Contact a Bankruptcy Lawyer in Iowa
Do you have questions about filing for Chapter 7 bankruptcy? An Iowa bankruptcy attorney can assist you. Contact Telpner Peterson Law Firm, LLP to get started on your case.