Alternatives to Chapter 7 Bankruptcy

Posted on July 27, 2013 by Staff Writer

When someone must file for personal bankruptcy, they often choose to file Chapter 7 Bankruptcy, under which a person’s debts are forgiven. It is a long process, during which certain assets are allowed to be kept and others must be liquidated to pay off the debts. A Chapter 7 Bankruptcy stays on a person’s record for 10 years, potentially ruining credit and making it more difficult to get loans.

When someone compiles a large debt, it is important to know that there are many options. If you are considering filing for bankruptcy and you are engaged in a business, you may petition under Chapter 11 bankruptcy. If you want to file for personal bankruptcy and you are confident that you can pay off your debts within the five year time limit, you may file for Chapter 13 bankruptcy, under which a payment plan will be created for you to pay everything off.

Chapter 13 allows debtors to keep their homes from foreclosure as well. This is also a good option because many courts will dismiss a Chapter 7 petition if the debts that have been gathered are mostly consumer debts and not business debts. Chapter 13 helps you to pay off your debts, while putting any additional payments on hold, preventing your debt from increasing while you are in bankruptcy.

When filing for Chapter 7 bankruptcy, one of the first numbers that is looked at is the current monthly income of the debtor. If that number is higher than the state’s median monthly income, another test must be used. The “means test,” which is required by the Bankruptcy Code, will determine whether or not filing for bankruptcy is truly necessary. The only way to continue on with the bankruptcy filing at this point is if the debtor can prove to the courts that he or she has special circumstances that cause additional expenses.

If a debtor does not pass the means test, the bankruptcy will be dismissed or converted to Chapter 13, under which the debtor must pay off all of the debts with a payment plan.

If you are in debt and are considering filing for bankruptcy, be sure to consider all of your options and contact a bankruptcy attorney for assistance. Arizona bankruptcy attorneys can help you decide what to do today.

The Bankruptcy Means Test

Posted on May 23, 2013 by Staff Writer

Back in 2005, President George W. Bush signed a new bill into law on October 17^th. It was the Bankruptcy Abuse Prevention and Consumer Protection Act and changed the ways that bankruptcies are managed in the United States. One way is by compelling filers to receive certified credit counseling as a step to securing a bankruptcy. Another way that the bankruptcy process has been changed is by creating a “means test” to qualify for bankruptcy.

This “means test” is necessary because of differences between Chapter 7 and Chapter 13 bankruptcy. Chapter 7 is also known as a liquidation bankruptcy because it discharges most debts through the sale of a debtor’s assets. Chapter 13, on the other hand, is a reorganization of debts. It allows you to keep most of your assets but sets up a repayment plan which lasts up to 5 years.

To qualify for a Chapter 7 bankruptcy, one important form that must be filled out is the “means test”. It is one of the ways to qualify for a liquidation bankruptcy. The “means test” reviews your current monthly income to see if you are able to repay your creditors in a Chapter 13 bankruptcy. If you can’t, then you are eligible to file for a Chapter 7 bankruptcy.

Current monthly income is an average of the six months leading up to your filing consisting of complete calendar months. This is all income from work, insurance, unemployment compensation, interest, and other forms of money earned. It is not including payments that were earned from previous months but paid in the six month period.

This will provide an accurate picture of your household income, which will be reviewed in two different ways. If your monthly income is below the median income for the same size household in your state, you qualify for a Chapter 7 bankruptcy. If it does exceed the median income, the rest of the “means test” will see if you have enough “disposable income” to repay your bills. For more information about bankruptcy or to file, contact an experienced bankruptcy attorney in Phoenix today.

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What is the “Means Test” and why do I need to know about it?

Posted on March 23, 2013 by Staff Writer

The bankruptcy code was revamped in 2005 and one of the most important enactments was the requirement for an income qualification for a Ch. 7 filing. The purpose was to prevent individuals or married couples from simply filing a Ch. 7 when they had the means to pay back their debt. Means testing “refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts.”

The bankruptcy amendments effectively subject most debtors who make an income, as calculated by the Code, above the median income of the debtor’s state to an income-based test. This test is referred to as the “means test.” The means test provides for a finding of abuse if the debtor’s income is higher than a specified portion of their debts. Debtors whose income is below their state’s median income are not subject to the means test. Notably, the Code-calculated income may be higher or lower than the debtor’s actual income at the time of filing for bankruptcy.

There are certain exemptions from the Means Test. The following are a list of common examples of exemptions to the Means Test:

If the debtor’s debt is not primarily consumer debt, then the means test is inapplicable.
If the debtor is either in the military or is a former military member, and the majority of the debtor’s debt was accumulated while on active duty, then the means test is inapplicable.
Social security income is not calculated in the means test formula.
Income received as a criminal restitution is not calculated in the means test formula.

Debtors that do not pass the stringent means test requirements can still file for a bankruptcy, but are forced to file as a Ch. 13. Here they will then be required to pay back some or possibly all of their debt. Due to the complexity of the means test, it is always recommended to speak with an experienced attorney to discuss a possible bankruptcy filing. If you are experiencing financial hardship, call my office right now so that we can discuss your options as they pertain to bankruptcy.

How do I know if I qualify for a Chapter 7 Bankruptcy?

Posted on February 24, 2013 by Staff Writer

Determining whether or not a person can qualify for a Chapter 7 bankruptcy is one of the most complex areas of consumer bankruptcy. The means test is used to determine who can file for Chapter 7 bankruptcy and who must file a Chapter 13. The means test was introduced to the Bankruptcy Code in 2005 and is designed to limit those individuals eligible to file for Chapter 7 bankruptcy.

The Chapter 7 bankruptcy means test compares your current monthly income against the median income for households similar in size to those in your same state. The means test looks at the average household income over the six months prior to filing. If your income is below that of the average household income for your state then you will automatically qualify for a Chapter 7 bankruptcy.

Now if your household income exceeds the median income for households of a similar size in your state you still may be able to qualify for a Chapter 7. This is because certain expenses are deducted from your current monthly income in order to determine your net monthly income. Now not all expenses are qualifying expenses, however, the following kinds of costs can be deducted: child support, alimony, tax withholding costs, health savings account, garnishments, certain utilities and several other types of expenses.

However, if you still do not qualify for a Chapter 7 even after deducting the qualified expenses you can still file bankruptcy. For most people who do not qualify for Chapter 7 bankruptcy because of their high income file Chapter 13 bankruptcy. Chapter 13 bankruptcy is a reorganization of your debts. The bankruptcy last for 3 to 5 years during which time you make payments to your creditors. At the end of the bankruptcy whatever balances are left over will be discharged.

The means test is one of the most complex areas of consumer bankruptcy so please speak with one of our bankruptcy attorneys to look at your individual situation. Don’t subject yourself to a Chapter 13 bankruptcy without first speaking to our experienced attorneys.

What does it mean if I don’t pass the means test?

Posted on February 3, 2013 by Staff Writer

The means test was introduced to the Bankruptcy Code in 2005. It is designed to limit those individuals eligible to file for Chapter 7 bankruptcy. The Chapter 7 bankruptcy means test compares your current monthly income against the median income for households similar in size to those in your same state. The means test looks at the average household income over the six months prior to filing. However, not all income is considered in the means test. Income from employment, gifts, financial assistance from others, income from a non-filing spouse are included in the calculation. However, social security income, social security disability, veteran’s disability benefits, and child support payments are not considered.

If you household income exceeds the median income for households of a similar size in your state you still may be able to qualify for a Chapter 7. This is because certain expenses are deducted from your current monthly income in order to determine your net monthly income. Now not all expenses are qualifying expenses, however, the following kinds of costs can be deducted: child support, alimony, tax withholding costs, health savings account, garnishments, certain utilities and several other types of expenses.

However, if you still do not qualify for a Chapter 7 even after deducting the qualified expenses you can still file bankruptcy. For most people who do not qualify for Chapter 7 bankruptcy because of their high income file Chapter 13 bankruptcy. Chapter 13 bankruptcy is a reorganization of your debts. The bankruptcy last for 3 to 5 years during which time you make payments to your creditors. At the end of the bankruptcy whatever balances are left over will be discharged.

The means test is one of the most complex areas of consumer bankruptcy so please speak with one of our bankruptcy attorneys to look at your individual situation.