Declaring Bankruptcy under Chapter 7 and the Means Test

What are the different types of bankruptcy? Which one will work well for the types of debt I have? What is a Chapter 7 bankruptcy proceeding? What is the means test and how will it affect my chances of filing Chapter 7? Do bankruptcy cases look into one’s monthly income?

The six statements above are just some of the many questions asked that are related to a Chapter 7 declaration of bankruptcy. This is understandably so. Bankruptcy law, after all, is quite complex. A lot of people want to know a lot about it, yet some articles on the web leave them more confused than enlightened. This article will focus on declaring bankruptcy under Chapter 7. Attention will be given to what is referred to as the means test and how it can affect liquidation bankruptcy cases.

People considering bankruptcy often research to get preliminary information on this legal process. What most filers are told as the first steps in filing for bankruptcy are: contacting a reliable bankruptcy law firm, undergoing bankruptcy counseling, and taking the means test. The first one is especially important since learning how to file a Bankruptcy Chapter 7 petition is not something that should be taken lightly. An expert on relevant state law can explain to you clearly and in detail how proceedings in federal bankruptcy court can help your case. A bankruptcy attorney from a trusted law firm can also explain the other two, as both are key steps in the bankruptcy process.

The bankruptcy means test determines who qualifies for debt-settlement through a Chapter 7 consumer bankruptcy, which applies to those with mostly medical debts or credit card debts. It checks whether a bankrupt debtor has enough ‘means’ to repay his or her outstanding debts and liabilities.

The means test is part of the meticulous bankruptcy procedure where the filer’s monthly income and living expenses are taken into careful consideration. The means test determines whether or not the disposable income of the filer is sufficient to pay off lenders and creditors. With assistance from reliable bankruptcy attorneys, debtors are to fill out the means test paperwork and submit supporting documents that are required by the bankruptcy court. Here, completeness and accuracy of the information should be the top priority. There are instances when inaccurate or withheld information can lead to legal problems, that one would have to deal with on top of his or her outstanding debts.

The bankruptcy means test is, in a sense, straightforward.  As stated in pertinent bankruptcy laws, a Chapter 7 bankruptcy filing looks into one’s monthly income and household expenditure. As such, proof of both must be secured and compiled.

Documentation of one’s monthly income for the last six months must be prepared and submitted since it must not exceed the median income in the state. If the income is below the state median, a filer qualifies for bankruptcy proceedings under Chapter 7.

Under the bankruptcy code, total living expenses shall be subtracted from the total income to determine one’s disposable income. Here, documentation of groceries, rent, utilities, medical bills, and other household expenses for the last six months must be prepared and submitted. If it is enough to pay back what is owed, one will likely not be allowed to proceed with a bankruptcy declaration under Chapter 7.

If disposable income is low and one passes the means test, a Chapter 7 case could be ideal. This is especially true if one is planning to have the unsecured debt discharged. If discharging credit card debt, medical bills, and other unsecured debts is the priority of the bankrupt individual, he or she should consult with a hands-on bankruptcy attorney to learn more about this debt relief option.

For those who do not pass the means test, one can try again after six months. This is because the documents on one’s income and expenses are only from the last six months. However, if one still does not qualify, he or she should consider other bankruptcy types.

Filing for bankruptcy under Chapter 13 will enable you to restructure debts, pay back what you owe through a payment plan, and keep personal property that would have otherwise been liquidated or repossessed. Restructuring and the repayment plan can also help stop foreclosure or wage garnishment. As such, you might need to file for bankruptcy under Chapter 13. 

If you want to clarify the steps involved in the bankruptcy process or are already considering bankruptcy, call our law firm. We will look into your current state and how a bankruptcy filing can be beneficial. We can also answer questions related to the means test or a Chapter 7 declaration of bankruptcy in general.

Contact us at Grafton Firm, LLC to speak with a reliable bankruptcy lawyer. Call 410-505-0414 for an initial consultation.