Understanding Chapter 7 Bankruptcy In Massachusetts

The main aim of a bankruptcy filed under Chapter 7 of the bankruptcy code is to eliminate, or discharge, your existing debts.  As a trade off for getting your debts eliminated, you must relinquish your assets to creditors.  While this may sound like a tough pill to swallow, in many cases, it is not as negative as it may initially seem.

What Assets are Liquidated?

First, the debtor is only required to hand over their non-exempt property, which in the overwhelming majority of circumstances, amounts to nothing once the appropriate exemptions are taken.  In a lot of situations that we see, a large amount of the debtor's property can be exempt.  Of course, the debtor is given the opportunity to decide what assets qualify and what assets are not exempt, with their bankruptcy attorney before the filing of the bankruptcy petition.

Median Income and the Means Test

If the debtor earns more than the median household income, they may have to navigate a legal test that is commonly referred to as the "means test". This test is used to figure out whether the debtor is eligible for a Chapter 7 discharge or is better off filing for a Chapter 13 bankruptcy.

In Massachusetts, the median income by family size (for cases filed after March 15, 2010) ranges from $53,315 to $99,293+

Totality of the Circumstances

The state of Massachusetts is considered a relatively affluent state and the median income numbers are generally higher than many other states.  Nevertheless, even if you are not subject to the means test, the government has deemed that the "totality of the circumstances" abuse test can still apply.  While this test is more vague than the means test, it basically says that if the debtor has the means to fund a reasonable Chapter 13 repayment plan, then that is the route to go.