Chapter 7 Bankruptcy Lawyer Guide: Means Test, Exemptions, and Discharge

The calculation of your current monthly income is not based on your current salary but on the average of all gross income received during the six full calendar months prior to your filing. This includes wages, bonuses, rental income, business profits and regular contributions from household members. If you file at a time when your average income is artificially high due to a recent bonus or seasonal work, you may be disqualified from Chapter 7 bankruptcy even if you are currently unemployed. A strategic legal team analyzes the timing of your petition to ensure the lookback period reflects your true economic hardship.

If your income is above the state median, the means test allows for the deduction of specific "allowable expenses" to determine if a presumption of abuse exists. These deductions are based on a combination of IRS national and local standards for food, housing and transportation as well as your actual expenditures for secured debts, taxes and mandatory insurance. If your remaining disposable income after these deductions exceeds a certain statutory limit, the court will assume that filing for Chapter 7 bankruptcy is an abuse of the system. We work with forensic accountants to identify every available deduction to ensure that you meet the eligibility criteria for a total discharge.

Certain individuals are exempt from the means test entirely, allowing them to file for Chapter 7 bankruptcy regardless of their income levels. This includes disabled veterans whose debts were primarily incurred while on active duty or during homeland defense and individuals whose debts are primarily non-consumer in nature. If more than half of your total debt is related to business ventures or taxes, you may bypass the means test. SJKP LLP evaluates the nature of your debt portfolio to determine if these high-level exemptions apply to your situation, providing a faster path to liquidation.

If a creditor is currently siphoning twenty-five percent of your paycheck through a wage garnishment, the automatic stay forces an immediate cessation of that deduction. A Chapter 7 bankruptcy filing lawyer ensures that the payroll department of your employer and the attorney for the creditor are served with the stay notice to prevent any illegal post-petition seizures. This restoration of your liquidity is often the first step toward stabilizing your household finances after months of economic decline.

For homeowners facing the imminent loss of their property, the automatic stay provides a temporary but powerful halt to foreclosure auctions. While Chapter 7 bankruptcy does not provide a permanent way to "save" a home with significant arrears like Chapter 13 might, it stops the sale long enough to allow for a strategic negotiation or an orderly transition. In certain cases, the stay can also pause eviction proceedings, though the protection is limited if a judgment for possession was entered before the filing.

Utility companies are generally prohibited from terminating service to a debtor for a period of twenty days following the filing of a Chapter 7 bankruptcy case. Additionally, if your vehicle is scheduled for repossession, the automatic stay prevents the lender from seizing the asset. This allows you to negotiate a "reaffirmation agreement" or a "redemption" of the vehicle, which permits you to keep the car by paying its current market value rather than the full balance of the loan.

Depending on your residency history and the laws of your state, you may be required to use state-specific exemptions or you may have the choice to use the federal bankruptcy exemption scheme. This choice is a high-stakes tactical decision. For instance, the federal homestead exemption may be lower than a state's generous "unlimited" homestead protection, but the federal "wildcard" exemption might be superior for protecting cash or investment accounts. We perform a side-by-side comparison of these options to determine which framework maximizes your asset protection.

The homestead exemption is the most critical protection for the majority of Chapter 7 bankruptcy filers. It allows you to protect a specific amount of equity in your primary residence from the reach of the trustee. If the equity in your home exceeds the allowed exemption amount, the trustee may attempt to sell your house. SJKP LLP utilizes professional appraisals and market data to establish a defensible valuation of your home, ensuring that your equity remains within the legal boundaries of the homestead protection.

Under the federal bankruptcy code, most qualified retirement accounts(such as 401k plans and IRAs) are fully exempt from the bankruptcy estate regardless of their value. This allows you to discharge millions in debt while keeping your retirement savings entirely intact. Additionally, many jurisdictions offer "tools of the trade" exemptions that protect the equipment and books you need for your profession. We ensure that every piece of professional equipment and every dollar of your pension is properly scheduled and exempted from the trustee’s reach.

At the 341 meeting, the trustee will cross-reference your filed schedules with your bank statements, tax returns and public records. Any inconsistency in your testimony or your paperwork can be used as a basis to investigate you for bankruptcy fraud or to deny your discharge entirely. SJKP LLP provides intensive preparation for this meeting, ensuring that your testimony is forensically accurate and that you are prepared for the trustee's line of questioning regarding your financial history.

The trustee possesses "avoidance powers" that allow them to undo certain transactions made before the bankruptcy filing. If you transferred a vehicle to a family member or paid back a personal loan to a friend within the last two years, the trustee can sue that person to recover the asset or the cash. These are known as "fraudulent transfers" or "preferential payments." We conduct an exhaustive audit of your financial transactions before filing to identify these risks and resolve them before they become a liability for your associates.

If the trustee identifies non-exempt assets, such as a vacation home or a significant stock portfolio, they will take possession of the property and sell it. The proceeds are then distributed to your creditors based on a specific hierarchy established by the bankruptcy code. However, in most Chapter 7 bankruptcy cases—often referred to as "no-asset cases"—the debtor is able to exempt all of their property, and the trustee collects nothing. Our goal is to ensure that your case falls into this "no-asset" category by aggressively utilizing all available legal exemptions.

Court-ordered child support and alimony are never dischargeable in Chapter 7 bankruptcy. These are considered "priority" debts that must be paid in full. Similarly, income taxes that were due within the last three years are usually non-dischargeable. However, taxes that are older than three years and meet the "three-two-two-forty" rules may be eligible for total liquidation. We perform a forensic review of your tax transcripts to determine exactly which tax years can be extinguished through your filing.

For decades, student loans were virtually impossible to discharge in bankruptcy. However, modern judicial trends and new Department of Justice guidelines have created a pathway for discharge through the "undue hardship" standard. To succeed, you must prove that you cannot maintain a minimal standard of living if forced to repay the loans and that your financial situation is likely to persist. SJKP LLP utilizes adversary proceedings to challenge these lenders and seek a total or partial discharge of education-related debt for qualifying clients.

If you used a credit card to purchase luxury goods worth more than a certain statutory amount within ninety days of filing, the debt is presumed to be non-dischargeable. Similarly, any debt resulting from "willful and malicious injury" to another person or property—such as a judgment from a physical assault—is excluded from relief. We analyze your recent spending and litigation history to identify these vulnerabilities and develop a defense against potential creditor challenges to your discharge.

Section 525 of the bankruptcy code prohibits governmental units from denying, revoking or suspending a professional license solely because an individual has filed for bankruptcy. This federal protection ensures that your "fresh start" is not undermined by state-level discrimination. This means that a board cannot state that your bankruptcy filing alone is the reason for a license denial. However, they can still investigate the "underlying circumstances" to determine if you meet the professional standards of character and fitness.

Lawyers, financial advisors and real estate brokers who handle client trust accounts face heightened scrutiny. Some boards require immediate self-reporting of a bankruptcy filing. A bankruptcy can trigger an audit of your client trust accounts to ensure that there was no misappropriation of funds. SJKP LLP assists licensed professionals in preparing compliant disclosures and navigating the board review process to safeguard their careers and their reputation.

While a bankruptcy filing appears on your credit report for ten years, it can actually help you obtain or maintain a security clearance. Federal investigators view high levels of unpaid debt as a "security risk" that makes an individual vulnerable to bribery or coercion. By discharging that debt through Chapter 7 bankruptcy, you remove that vulnerability. We help our clients organize a narrative that demonstrates financial responsibility and rehabilitation, ensuring that their past debt does not become a permanent barrier to their career advancement.