Determining Which Type of Bankruptcy Is Best
Those who are struggling with debt may look into bankruptcy as an option for achieving a level of financial relief. If you are considering Chapter 7 bankruptcy, some criteria need to be met in determining if you qualify for this option through the means test. The means test is a tool to determine if your income level qualifies you for Chapter 7 bankruptcy or if you only qualify for Chapter 13 bankruptcy. Here is what you should know.
The Calculation of Debt vs. Income
The bankruptcy means test calculates your income versus debt, expenses, family size, etc., and determines whether or not you qualify to file for Chapter 7 bankruptcy. It was designed to prevent high-income earners from filing for Chapter 7 bankruptcy to discharge their debts rather than restructure their payments in Chapter 13.
The means test is taken primarily with individuals who have mostly consumer debt, meaning debt that is related to personal or household expenses.
How the Test Works
The first step in the process is to determine whether your monthly income is greater or less than the median income for a household of your size in your state. If your income is less than this number, then you can file for Chapter 7 bankruptcy without having to take the means test. If your income is greater, then you must take the means test.
The means test works by taking your current monthly income (calculated by taking your average income from the previous six months before you file for bankruptcy) and subtracting certain monthly expenses. To be thorough, you should gather as much paperwork detailing your expenses as you can in order to prove what you are spending.
The final amount after this calculation is your disposable income. If your disposable income matches or exceeds a certain amount (which varies depending on your state, household size, and region), then you will be unable to discharge your debt through Chapter 7 bankruptcy. If your income is still lower, then you can seek Chapter 7 as an option (be aware that passing the means test does not automatically mean you will qualify for this discharge).
It is important to have a bankruptcy attorney help throughout this process. Filling out the necessary information can be confusing, so knowing you have an experienced bankruptcy attorney assisting you can provide great relief.
How I Can Figure Out My Eligibility
To determine your eligibility for Chapter 7 bankruptcy, the U.S. Bankruptcy Court has provided several forms you can fill out to help you determine whether or not you pass the means test.
It is also important to speak with a bankruptcy attorney who can help you determine the best course of action for your financial future. At Duke Law Firm, P.C., we know that debt can be overwhelming, which is why we want to help. We are available to help you figure out the next step for you, just as we have done for many others.
To speak with our bankruptcy attorney, call us at (585) 449-4987 or visit us online.