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.