Deciphering the Chapter 7 Means Test
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When filing for Chapter 7 Bankruptcy, most if not all of your assets are ordered sold by the Courts. When Trustee sells these assets, the proceeds are used to repay creditors. In other words, Chapter 7 Bankruptcy often means losing the assets you own.
Whenever someone files for Bankruptcy, he or she is subjected to a Means Test to determine whether the filer can indeed qualify under Chapter 7 or Chapter 13 bankruptcy rules. Here, we examine points that are specific to the Chapter 7 means test.
As far as the Courts are concerned, the Chapter 7 Means Test starts with the following measurements:
1. The debtor's average income of the last 6 month. 2. Then, the average personal income is compared with the per head average income of the state. Suppose, the median personal income of a person is $20,000. Now, if the debtor's personal income is below $20,000, then Chapter 7 can be applied to him/her. And if the debtor's income is greater than the median ($20,000) then further steps of means test are carried out.
In the event that your average personal income exceeds the State's Median income, the Chapter 7 Means Test evolves to include the following processes:
1. The courts will take your income and subtract allowable expenses. This will result in a disposable income figure that the courts will multiply by 60 in order to obtain a 5-year figure. 2. The second part will compare your five-year income against the State's median 5-year income. If your amount is greater than the State's median by $10,000 or more, then you will not qualify under the Chapter 7 Means Test (although you will likely qualify under Chapter 13).
Additionally, the disposable personal income should be 25% unsecured or non-priority debts otherwise or else you have to go for chapter 13.
You can complete these calculations yourself before sitting down with a bankruptcy trustee or professional, who is compensated on your choosing to file for Chapter 7 or Chapter 13 bankruptcy. However, if your own calculations come close to the State's median, you should definitely seek professional assistance as they will need to complete these calculations anyway.
Of course, Chapter 7 and Chapter 13 bankruptcy should only be a last resort given the short- and long-term damage it causes to your credit score, finances, and emotional state. If you have the ability to repay your debt on a fixed schedule, you should explore such options before resorting to bankruptcy.
Article Source: Articlelogy.com
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