If you are just exploring bankruptcy options, you may be overwhelmed by information and not even be able to determine if you can or should file for Chapter 7 or Chapter 13 bankruptcy.
When filing Chapter 7 bankruptcy, one of the first tests a person will need to pass is the means test. This test looks at monthly income and assets and checks for bankruptcy abuse. If the trustee feels that a person has the means to pay back his or her creditors, they will reject the Chapter 7 for potential abuse. Many think that a means test will automatically force them into filing for Chapter 13 or may prevent them from filing altogether, but that is not necessarily the case.
The test was created in an effort of holding those who could pay off their debts through Chapter 13 bankruptcy responsible for paying at least part of their debts. Some approach the test with anxiety, but it is a necessary step in the process. It is beneficial to have someone with experience guide you through it.
Current Monthly Income – You need to determine your current monthly income. This is not your current income, but the average of your income over a period of time. You would calculate your average monthly income over a 6-month period.
Your State Median – You will need to know your state’s median family income. The state median amounts change frequently so it is important to make sure you have the latest figures. Anyone with an income higher than the state median must take the means test unless they fall into an exception category.
Once you have your current monthly income minus your allowable expense you get what disposable income you have available to pay off debts. If you have enough in the courts’ eyes, you will not be able to file for Chapter 7 bankruptcy.
If your income falls below the median income, you can file for Chapter 7 bankruptcy, but that doesn’t necessarily mean you should. It is in your best interest to work with the experts at Westbrook Law Group to help sort out your financial situations and get moving on a better path. Call today for your free consultation.
An additional test is the “totality of the circumstances,” which seeks to identify any further abuse. If the trustee finds that, based on your circumstances, you should be able to repay at least a portion of the debt, we may not be able to file Chapter 7 for you.
There is not a set formula for determining whether a person will pass or fail the totality of the circumstances test, unlike the means test. Here, the trustee will look at the following:
For instance, if the court finds that your disposable income falls below the threshold for the means test, but you are paying $2,500 a month in rent, they may determine that this amount is unreasonable and reject your Chapter 7 filing. Likewise, if your monthly income over the past six months is low, but you have just started a new job that pays substantially more than the median income, the trustee may find this abuses the bankruptcy process. Westbrook Law Group can examine your circumstances and identify any potential issues with your Chapter 7.
Even if you can’t file Chapter 7, options exist to get your debt under control. At The Westbrook Law Group, we will work to find the best option possible for your debt management needs. We will help you get the fresh start you need after bankruptcy and help you get life back on track. If you need help with overwhelming debt, contact us today for a free consultation.
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