The Chapter 7 Bankruptcy Means Test
Chapter 7 bankruptcy discharges a person’s unsecured debt such as credit card debt, personal
loans, payday loans, and medical bills. This means that an individual
who files for Chapter 7 bankruptcy no longer has to pay most of their
creditors for outstanding debt, and creditors are prevented from even
contacting the individual about the debt.
Before filing for Chapter 7, an individual must pass a means test –
a two-part test used to determine if the person’s income is within
a certain level and to see if disposable income can be used to pay off
part of the debt. If the individual passes the means test, they can most
likely file for Chapter 7 bankruptcy; though there is one more analysis
which must also be done. If a person does not qualify for a chapter 7,
then they may have to file for Chapter 13 bankruptcy. In some cases, chapter
13 can be a very good tool to get out of debt.
Completing an Income Assessment
The first part of the process involves completing an income assessment
to determine if the individual’s income is above or below their
state’s median income. The individual must provide information for
all income earned or received over a period of six months before filing
for bankruptcy. If the person’s income is at or below the state’s
median, they do not have to complete the second part of the process; and
most likely, they can file for Chapter 7 bankruptcy.
Determining Disposable Income
If the person’s income is above the state’s median, they must
proceed to the second step of the process, which is determining if they
have the means to pay off some of their debt. The individual must gather
information about their living expenses, such as rent, medical expenses,
and food. When the expenses are subtracted from the income, what is left
is called disposable income.
If the disposable income is enough to pay off some of the debt, the individual
cannot file for Chapter 7 bankruptcy. Instead, the person can file for
Chapter 13 bankruptcy. Unlike Chapter 7, which discharges most debt without
requiring a payment plan, Chapter 13 requires that the person follow a
repayment plan for paying off their debt. This payment plan is different
for each case and can result in as little as none of the unsecured debts
being paid all the way to 100% of the unsecured debts being paid. There
are several factors that determine how much has to be paid.
San Diego Legal Pros Can Help You Understand Your Financial Relief Options
The process of determining if you qualify for Chapter 7 bankruptcy can
be complex. If you don’t pass the means test, you’ll want
help understanding the other relief options available to you. Our
San Diego bankruptcy lawyers can help you with this process. We have over a decade of legal experience
and can provide you with guidance and options regarding your finances.
We understand stresses that can arise from financial pressures and can
give you personalized attention to help you live debt-free.
Contact our bankruptcy lawyers
online or by phone at (888) 875-9190 to discuss your financial relief options.