What is a Means Test Under Chapter 7 Bankruptcy?
In the recent years, bankruptcy has become the only way out for many people suffering unbearable debts. According to the US law, a business, partnership, a corporation or an individual like you and me, can seek relief from debt under Chapter 7 of the bankruptcy law.
Last year on October 17, 2005, a new bankruptcy law was passed and a means test was introduced. It determines whether you are eligible or not to file under Chapter 7. The point behind the means test is to determine whether you have enough money left to pay back some of the money you owe to your creditors or not, after all your allowed living expenses are taken in to account.
It is calculated by subtracting an IRS allowed living expenses from your monthly income.
If your income after the calculation shows to be lower or equal to the median income of the state you live in, you will most probably be allowed to file under Chapter 7.
However, if your income happens to be larger then median income of the state you live in then your average income for the past six months will be taken in the consideration, or might be forced to file under Chapter 13 of the bankruptcy law.
Some of the expenses taken in the consideration are:
1. Utilities
2. Food
3. Clothing
4. Gas and transportation bills
5.Mortgage loan
6. Car loan
7. Child support
8. Taxes
If on the other hand after subtracting all of these expenses, you have at least $6000 left over to pay back to your creditors (the unsecured ones) in the next 5 years you will be forced to file for Chapter 13 instead.
Also under the 2005 bankruptcy law, you will need to file all your overdue tax returns if you want to apply for Chapter 7.
In case that during the 180 days of proceedings your application happens to be dismissed because of the willful failure on your side to comply with the court orders you will be denied filing for bankruptcy under Chapter 7.
Also in case that you as an debtor have dismissed the previous case of your own free will, after your creditors have required relief through the bankruptcy court, your petition will also be denied.
2005 bankruptcy law has brought along one more important change, as an individual you are now obliged to obtain credit counseling from a certified counselor before you can file for Chapter 7 bankruptcy.
The purpose of credit counseling is to educate you and help you reorganize your financial affairs. If you are serious about filing for Chapter 7, you have to provide the court with debt management plan you have developed during credit counseling, within 180 days prior to filing for bankruptcy.
Nikola Govorko
http://www.articlesbase.com/finance-articles/what-is-a-means-test-under-chapter-7-bankruptcy-81659.html
4 Responses to “What is a Means Test Under Chapter 7 Bankruptcy?”
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Does anyone know if you file a chapter 7 bankruptcy can you keep your car if the value is less than your loan?Also under the new means test guidelines for a Chapter 7 Bankruptcy what is the maximum total household income for two adults married with one child, and one on the way if that will count.
My wife is pregnant. Will that child count as another dependent for bankruptcy purposes as for tax purposes both children will be filed for this tax year 2009. The bankruptcy hasn't been filed yet, but won't be complete until our second child is born. We plan to file within the next two weeks. We also live in California. Thanks
The car is a Hyuandai Sante Fe 2008 which the loan is less than a year old and about 31000 is owed. The car has no appreciation off the lot nor does it have any value in it as we only put $1000 down. It has 15k miles now. I was wondering if you can keep the car if it isn't filed and payments are kept up to date as there isn't a value in the car right now and the loan won't be paid off until 5 years from now.
I have to admit I didn't know there were "new" means test guidelines for a Chapter 7. I was under the impression that now is the same as before except that the judge now turns the Chapter 7 into a Chapter 13 and makes everyone pay instead of clearing off all bills. I know in a Chapter 13 if the car is worth $500 or less (you'd fill in a form and file it as a document in your Chapter 13 and no one can take it from you if the car is free and clear of all loans). So I'd suggest you get with an attorney to ask your questions just to be sure.References :
~~All I know is a couple can not earn more than $65,000.00 a year but I don't know if that amount is different if there are dependent children.
A car with an outstanding loan is not an asset, therefore it can be reclaimed.
You only count assets which are paid for. For a couple you can't have more than $25,000.00 in personal assets. If so then items can be forced sold to pay back debtors. To calculate the amount of your assets, you would add them up as you would price them for a garage sale, or private sale. Everything is used.
I am under the understanding you can keep anything you want that has a loan. Then I have heard a couple of people say the BK court makes sure you can make the payments. So I can't give a definite answer on this.
Attorneys have free consultations, and you can take your income and debt information to one and they will gve you all the information to answer your questions.~~References :
For the means test you have to go by the state that you live in, and the amount of your median income based on both spouses. You really need to contact a local bankruptcy attorney, most will see you free the first time. The vehicle, if you want to keep it in a chapter 7 filing and you qualify for the chapter 7, you "re affirm" the loan and continue to pay while you discharge the other debts you have. Same with a mortgage….If you don't qualify for the chapter 7, you can go into the chapter 13 payment plan, which runs approx 5 years and pays the secured debts first, unsecured last. A good attorney will be able to tell you what you qualify for once they look at your income for the last 6 months, debts, assets, and taxes either 3 or 4 years. You can review more bankruptcy information at http://www.usbankruptcy.gov This is the bankruptcy official website and has excellent income if your not sure how a bankruptcy filing works or what is required. Good Luck!References : Former BK Legal Assistant