In a Chapter 7 bankruptcy most consumer debts are wiped out, so that a consumer can have a fresh start. The debts that are wiped out are mostly unsecured debts, such as credit cards or utility bills, but not mortgage or car loans. You still have to pay a mortgage or car loan if you want to keep the property, but the debt can be wiped out if you want to give the asset up. Some debts, such as recent taxes or student loans, are not dischargeable or only dischargeable under special circumstances.
Most consumer debtors are allowed to keep all their property in a Chapter 7 bankruptcy, but if a debtor has more property than the law allows for the debtor to keep, the property must be given to a trustee who will sell it to get money to pay creditors.
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 debtors are now required to pass a means test to be eligible for relief under Chapter 7. As a generalization, the means test limits eligibility to debtors who earn less than the state median income for a family of the same size.
Median income levels in Pennsylvania are:
Single Person: $57,919
Two Person: $71,448
Three Person: $88,293
Four Person: $105,138
Add $8,400 for each individual in excess of 4.
Debtors whose earnings place them above median income are required to file under Chapter 13 where they will be required to repay a portion of their debts over a period of up to five years.
More detailed information on means testing is available from the Department of Justice and at Legalconsumer.com.
After filing bankruptcy, debtors must participate in a financial management class from which they must obtain a certificate of completion for filing with the court. Taking a financial management class is a condition for successfully completing a Chapter 7 bankruptcy and obtaining a discharge of debts.