After the Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005, rumors circulated that if you had a job, there was no need to file bankruptcy because it would do no good. The supposition was that if you had a job, you could afford to pay your debts. The only way to fund a Chapter 13 bankruptcy filing, however, is if you a job, so the myth is false.
The means test was implemented in the 2005 to divert filers, who made more than the median income compared to other filers in their state, to a Chapter 13 Bankruptcy. In reality, this rule has affected very few filers.
Means testing refers generally to the eligibility for relief of debtors who have sufficient financial means to pay a portion of their debts. Debtors whose income is below the state’s median income for a family household of the same size are not subject to the means test.
A means test includes a formula designed to help determine who is eligible to file for Chapter 7 Bankruptcy, the simplest type of bankruptcy to file. Although a complicated formula, the bankruptcy means test is rather generous and many debtors have no trouble meeting its requirements. Almost 80% of all individual filers today file Chapter 7 Bankruptcy.
Means testing is determined by how much disposable monthly income you have. More accurately, it is called discretionary income, and it is the total gross income of all the earners in a family, minus the cost of taxes and living expenses. If your discretionary income falls between $100 and $166.66 per month, your eligibility for Chapter 7 Bankruptcy is determined based on the percentage of your discretionary income to your debt, with 25% as the cut-off. If your discretionary income over 60 months exceeds 25% of your debt, you must file Chapter 13 Bankruptcy. If it is less, you can file under Chapter 7 Bankruptcy.
There are advantages and disadvantages for filing Chapter 7 or a Chapter 13 Bankruptcy.
If you qualify for Chapter 13 Bankruptcy you may be able to save your home from foreclosure, to reschedule secured debts, to provide protection for co-debtors, to consolidate your loans under one plan, to keep non-exempt property, to extend certain tax obligations, student loans, or other such qualifying debts and to qualify for bankruptcy relief.
Filing Chapter 7 Bankruptcy has its own advantages. Chapter 7 Bankruptcy can bring faster and greater relief, make filers better credit risks more quickly (because they do not carry ongoing payments) and it is cheaper. The success rate for getting a discharge through Chapter 7 Bankruptcy is also higher.
How do you know which bankruptcy to file? If you have assets you want to keep, you currently have an income, and you want to try to pay your creditors as much as you can, Chapter 13 bankruptcy may be right for you. If you do not have many assets, you do not have a mortgage, you want to discharge your debts debts quickly, Chapter 7 Bankruptcy, if you qualify, may be a better option.
Whether you have a job or not, you can file file for bankruptcy protection. If you need relief from the stress of debt and you live in or around the metropolitan areas of Cleveland, Lorain, or Elyria, Ohio, contact us at www.betterbankruptcy.com .We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.
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