Chapter 7 bankruptcy is a legal process designed for the purpose of liberating a person from their unsecured debt obligations when they are having difficultly servicing the debt. However, it doesn't automatically erase secured debt backed by collateral like car payments, secured credit lines or mortgages. This form of bankruptcy, because it is faster, more common and less complicated than a Chapter 13 filing, is frequently called a liquidation or straight bankruptcy. Understandably, some people are initially worried about the idea of filing for Chapter 7 due to the fear of asset liquidation, but the sale of any personal or household items can often can be prevented if you pass the bankruptcy means test that is covered in the next step below. Even if you ultimately decide not to pursue Chapter 7, a Chapter 13 filing may still be something that can benefit you, so it pays to research all of your options.

Passing the means test is critical, as you aren't allowed to file Chapter 7 bankruptcy if you don't. To pass, you must prove that your total family income is not more than the median income in Massachusetts. Fortunately, though this median is recorded by the Census Bureau, it does vary depending on the size of your household. The following maximum incomes are applicable for cases filed after March 15, 2009http://research.lawyers.com/Massachusetts/Bankruptcy-in-Massachusetts.html:

1. Single individual: $54,842
2. Two person family: $66,437
3. Three person family: $83,104
4. Four person family: $100,280
5. Five+ person family: $100,280 plus $6,900 for each extra individual over four

When seriously considering chapter 7 bankruptcy in Massachusetts, it is advised that you consult with a bankruptcy attorney as soon as possible. They will help you work through the exemptions and determine which ones you have a right to claim. Once you have checked that you are allowed to declare chapter 7 bankruptcy after passing the means test, your attorney can decide on a strategy to keep your assets out of liquidation. Massachusetts actually allows you to pick one of two exemption schemes to use, a federal system or a state system. The federal numbers may appear lower in some cases, but married couples may also double the exemption amounts under this option only. Though bankruptcy lawyers are the best people to talk to about the details, here are a just a few of the exemptions allowed in both schemes for Massachusetts under the 2009/2010 guidelines:http://research.lawyers.com/Massachusetts/Bankruptcy-in-Massachusetts.html

1. Disability benefits, up to $400 per week
2. Boats, fishing tackle and nets of a fisherman if they are actually used in his/her business, up to $500 in value
3. $550 per item in any household goods up to a total of $10,775 - double for married couples
4. Necessary clothing, beds and bedding, one heating unit for warming your home and $75 per month to pay utility bills
5. Household furniture, up to $3,000 in value
6. Medical malpractice self-insurance
7. Your home, including co-op or mobile home, to $20,200 - double for married couples
8. Your home, if you don't have more than $500,000 in equity in the house (today's value less costs of sale less payoff balances on all liens and mortgages)
9. One sewing machine, up to $200 in value

The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.