How The Means Test Will Help You Determine Whether To File For Chapter 7
Whether or not you are allowed to file for Chapter 7 bankruptcy depends on the means test. This is a test carried out to determine your ability to pay off your debts. If the courts determine that you are able to pay your debts, they may require that you file for Chapter 13 bankruptcy instead.
The Rationale Behind Chapter 7 Bankruptcy
The purpose of Chapter 7 bankruptcy is to allow you to discharge your debts. The downside is that you will be required to sell your assets. However, once all of your assets have been liquidated, barring exempt assets, you will no longer be responsible for the remaining debts.
The idea behind Chapter 7 bankruptcy is that you are not able to pay off your debts and that you should be allowed to have a clean start. However, if your income is great enough, you be required to instead file for Chapter 13 bankruptcy.
How the Means Test Works
Your monthly income will be compared to the median income for a family of a similar size as yours. The majority of those who file for Chapter 7 bankruptcy pass this step. However, if your income is considered to be higher than the median income for a household of your size, you might still qualify for Chapter 7 and will need to take the second portion of the test.
Calculating Your Expenses
If your expenses are very high and your monthly income is not enough to pay for your expenses, you might qualify for Chapter 7 bankruptcy. This is a complicated process and it's best to go through this process with the help of a Chapter 7 bankruptcy attorney.
The type of expenses you must account for include your standardized expenses such as your food and transportation costs, payments that you need to make to creditors, obligations you must meet such as child support payments, and administrative expenses related to the act of filing for bankruptcy.
You May Still Be Eligible
Even if you fail the means test, you might be able to file for Chapter 7 bankruptcy if your income has recently fallen. However, you might need to wait before filing for bankruptcy to make sure that enough time has passed since the decline in your income.
If you are just barely eligible for Chapter 7, it's a good idea to discuss whether you would benefit more from one type of filing or another. An attorney will help you explore all your legal options.
For more information, contact a local firm like McManus & Associates.
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