There is nothing worse than seeing bills piling up with insufficient income to cover them. Sometimes the only option is to seek relief via bankruptcy.
For many years it was a simple matter to file for bankruptcy. However, it became more difficult when Congress passed the Bankruptcy Protection Act of 2005. This was when passing the Bankruptcy Means Test was brought into requirements to file for an exemption from debts. This test is not applicable if the filer’s debts came mostly from operating a business.
Today, there are two different types of bankruptcy. Chapter 7 wipes out all debts completely, while Chapter 13 requires repayment of a portion of the debts. The first step is filing a petition, which includes schedules. You must list all your property, assets, debts and exemptions on these schedules. A review of your recent financial history will also be reviewed.
Caution: Providing incorrect information on any of these schedules can result in a charge of perjury. In addition, incorrect information can result in you not receiving the bankruptcy relief you deserve.
A bankruptcy petition and schedules are filed with the bankruptcy clerk in the area in which you live. When these papers are filed, creditors are notified and there is an automatic stay which forbids collection actions by creditors. This gives you a period of freedom from bill collection harassment, while the petition is being considered. Note: Any wages earned, after the petition, belong to the creditors.
The trustee will take over any assets that are not exempt under the bankruptcy exemptions. After a deduction for administration expenses, these assets can be sold to help repay something on the non-exempted debts.
A “first meeting of creditors”, also known as a 341 meeting, will be called where, in front of the creditors, you will be asked to take an oath regarding your application and answer questions. The creditors can question you if they wish to do so. It is reported that creditors, as a rule, very seldom show up for these meetings.
There is a 60-day window, from the time of the 341 meeting, where the creditors can still challenge your right to discharge a particular debt (Bankruptcy Code 727). If this action is not filed, a “discharge of debts” will be filed by the court.
To qualify for the lower Chapter, it is necessary to pass The Bankruptcy Means Test. This test will determine if your income is low enough to file under this statute.
The Bankruptcy Means Test is broken into sections. Part one compares the average monthly income for 6 months, prior to filing for bankruptcy, to the state’s median family income. This makes it important to know what is deductible, as the medium, for your state.
An example of things that can be deducted when filing for Chapter 7 Bankruptcy include:
The monthly income must include things such as wages, rental income, business income, pensions and retirement plans, interest and dividends, unemployment income, any money contributed to your household by others and other means of income. Exceptions to this calculation are Temporary Assistance for Needy Families, tax refunds, Social Security Disability Insurance and Social Security retirement benefits.
If you have an income larger than the state medium, you may still be able to pass the Bankruptcy Means Test under certain circumstances. This means collecting all the income information and subtracting all allowed expenses. This will determine which Chapter you can file under.
In New York, for example, if you are single and your monthly total is less than $7,475 you pass the means test and can file a Chapter 7. If your disposable income is over $12,475 then further calculations are required to determine which Chapter you can file under.
The Bankruptcy Means Test exemptions are:
Naturally, when a bankruptcy application is filed with the court, the information will be reviewed and steps will be taken to determine which chapter you are allowed to file under. Sometimes the services of an arbitrator will be brought into play to be sure you qualify for the exemption status.
Filing for bankruptcy can be very confusing and it is important that it be done correctly if it is to be advantageous to the petitioner. This can be a confusing process and it is often best to seek the assistance of an attorney who is knowledgeable in this field. There is no charge for a consultation and they can help you determine if you meet the Means Test. If desired, they can represent you through the bankruptcy process.