Good News and Bad News on the Bankruptcy Front

Bankruptcy Filings...

Bankruptcy Filings... (Photo credit: MyEyeSees)

For those of you who are considering filing bankruptcy in 2012, there is some good news and there is some bad news on the bankruptcy front.

The good news is that the federal government has recently, as of May 1, 2012, posted the median amount of income across the United States used in figuring the means test qualification for filing a Chapter 7 bankruptcy. In many cases, the good news is that this is an increase for most families facing bankruptcy in 2012. The bad news is that the increases still don’t meet the levels before the 2007 recession and more people are out of work.

A Chapter 7 is the simplest type of bankruptcy and is filed by most individuals. Depending on where you live, there are advantages for people with no assets filing a Chapter 7. A Chapter 7 is a liquidation type of bankruptcy where a bankruptcy trustee will take your non-exempt assets and liquidate them to distribute the proceeds to your unsecured creditors. Any unpaid debt after distribution by the trustee will be discharged as forgiven. Most Chapter 7 bankruptcies are no asset cases.

To qualify for a Chapter 7, your family income must be at or below the median income for a family your size within the area in which you live. The median income going up in the new charts is good news for those who are bankrupt because it means more debtors can take advantage of a Chapter 7 filing.

If your income is not at or below the median, you can take the means test and still qualify. To pass the means test, you must have less than a certain amount of disposable monthly income to service unsecured debt. If your disposable income is more than what is allowed, you will have to file a Chapter 13 if you still want to file for bankruptcy protection.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that was legislated by Congress is the basis for means testing under current bankruptcy law. It was once thought that passing the new guidelines would curtail bankruptcies, but for the most part, the law has made more paper work and added additional costs to filing. If anything, the law has hurt the poorer debtors most in need of filing.

If majority of your debts are non-consumer debts, you can file a Chapter 7 without having to qualify for the means test. Consumer debts are those debts primarily incurred for the purpose of household use. Non-consumer debts are those debts incurred for the motive of profit. If you work in your own business, you are most likely to incur non-consumer debt. So, if more than 50 percent of your debt is non-consumer, you do not have to qualify for a Chapter 7 by passing the means test.

It is always bad news when you have to file for bankruptcy protection, but the good news is that you don’t have to do it alone. Ask about our experienced bankruptcy lawyers that can help you decide what type of bankruptcy to file in your particular situation.

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