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How do debtors qualify for Chapter 7 bankruptcy protection?

Most residents in the District of Columbia and surrounding areas are familiar with the concept of bankruptcy. Some may even be concerned about how much unsecured debt they are carrying through personal loans, medical bills and credit cards. Debt often accumulates during tough economic times, but it should be paid off as quickly as possible to avoid becoming unmanageable and damaging a person's credit rating. In the worse cases, debt can lead to foreclosures on property and bring creditor harassment. Fortunately, the federal legal code allows honest debtors to settle their debts and obtain a fresh start through the process of bankruptcy.

What does Chapter 7 bankruptcy involve? Also called "liquidation," a Chapter 7 bankruptcy sells off a debtor's tangible assets to directly pay off the person's debts. To qualify for this option, a debtor must file a petition with details about the person's income -- this is considered a means test for qualification -- and appear in court 180 days after filing the petition for protection. Failure to appear means a court will automatically dismiss petitions for any type of bankruptcy protection, including Chapter 7. If debtors are allowed this type of protection, they will need to undergo credit counseling from accredited credit counseling agencies.

What other steps do debtors need to take to secure Chapter 7 bankruptcy protection? While debtors wait to see if they qualify for Chapter 7 protection, they must compile a list of all debts, all income and all assets that can be liquidated. Fortunately, Chapter 7's exemptions mean that a house and some other important personal property or assets can be spared liquidation.

To learn more about bankruptcy protection, debtors should consult with qualified bankruptcy attorneys who can answer their questions and address their concerns. These attorneys can also file petitions on their behalf.

Source: United States Courts, "Liquidation under the bankruptcy code," accessed on Feb. 5, 2015

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