In recent years, people have become increasingly aware of the effect that credit card, student loans, mortgage loans, and other debts can have on their livelihood. Persons may find that their monthly payments increase significantly due to rising interest and adjustments to their home loans. This can place serious stress on a person's finances and may result in loan defaults, foreclosure, and other negative actions.
Although it is the responsibility of the individual to budget his or her monthly expenses and measure that against their income to make sure they are not living beyond their means, people may find that circumstances beyond their control may cause them to fall behind on important debt payments. Events like job layoffs, divorce, loss of spousal support, and other circumstances can cause serious financial problems.
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Serious financial struggles may force individuals to turn to bankruptcy to escape from the burdens of debt and return to stability. People who are looking to discharge unsecured debts like credit cards, certain types of loans, and other liabilities often choose to file for Chapter 7 bankruptcy. This type of bankruptcy usually requires the applicant to list all of their assets and liabilities so that the court can determine which debts may be discharged, which assets may be liquidated and sold to repay creditors, and what steps the individual should take to emerge from bankruptcy with a clean slate.
While persons who file for Chapter 7 bankruptcy may find that they do not have to repay certain debts, liabilities like taxes, spousal and child support, and student loans cannot be discharged by bankruptcy filing and are still due regardless of the person's financial situation. In addition, there are often financial requirements that must be met before the individual may file for Chapter 7, and persons who apply for bankruptcy may be asked to fulfill a "means test" to prove that they qualify for Chapter 7 protection.
The means test often requires the applicant to prove that their income and expenses qualify them for protection under Chapter 7 bankruptcy, and depending on the specifics of their financial situation, they may be accepted or denied protection. Persons who make more than the median income for a family of their size in their specific state may not be eligible for Chapter 7 and may be required to file for Chapter 13 bankruptcy, which usually restructures a person's debts and payments and does not allow for the discharge of debts.
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