With the new bankruptcy laws in effect, debtors will have to first pass a two-part means test before filing for Chapter 7 bankruptcy. First, a quick definition of Means Test: Means = Money, property, or other wealth (source: Dictionary.com)
Your Income Vs. Your State's Median Income
In the first part of the means test, your monthly income multiplied by 12 is compared to your state's median annual income. Your state's median income would be below your state's highest incomes and above your state's lowest incomes.
If your income falls at or below your state's monthly median income, then your Chapter 7 bankruptcy filing will likely be successful. On the other hand, if your monthly income does not fall below your state's median income, then your income will then be factored into a formula. Your formula results will determine your ability to file for Chapter 7 bankruptcy.
Means Test Formula
Under the Means Test, any creditor, trustee or judge will look at your monthly income, minus certain living expenses like food and rent. Your Chapter 7 bankruptcy will likely be successful if you are unable to pay at least $6,000 over the next five years ($100 per month). However, if you can pay at least $10,000 over five years ($166.67 per month or more) your Chapter 7 bankruptcy will likely be denied.
If you could afford more than $6,000 but less than $10,000 over five years, then a mathematical calculation determines whether your Chapter 7 filing will likely be successful or not. If you could afford to pay 25% or more of your unsecured debt, then a Chapter 7 will likely be denied. If you can't afford to pay 25% of your unsecured debt, your Chapter 7 filing will likely be successful. Examples of unsecured debts would include medical and credit card bills. Note that you can still opt for Chapter 13 in either of these cases.
Conclusion
You should be aware that the new bankruptcy law lets the government decide what is best for you. The updates take away discretion from the Judges to judge cases based on individual circumstances. It is doubtful that the courts can make exceptions for results.
ABOUT THE AUTHOR
Jeffery J. Aleman is a managing partner with Legal Helpers specializing in consumer bankruptcy law.
Legal Helpers is a debt relief agency helping people to file for bankruptcy relief under the bankruptcy code. With over 25 offices throughout the country and attorneys answering the telephones six days a week, their firm is always striving to provide the highest level of client service available. Legal Helpers aggressive representation and extensive experience have earned Attorneys Macey and Aleman a national reputation for excellence in the representation of Debtors in financial distress.
Legal Helpers can be contacted by phone at (888)743-5787 or email them at info@legalhelpers.com or visit their web site at www.legalhelpers.com
