Not being able to meet your financial obligations can make every day stressful and uncertain. Worrying about having your wages garnished, providing necessities for your family, or even losing your home can end up making you feel consumed by money trouble. Bankruptcy is one solution to helping you take back some control of your situation. Chapter 7 bankruptcy, also called “liquidation bankruptcy,” allows you to wipe out all of your debt and get a fresh start. However, not everyone is eligible for Chapter 7 relief. In order to file chapter seven, you will first need to pass the “means test.”
The Chapter seven means test starts by considering your household income. The test looks at your last six months of income and whether it is below the median income for your state. The test will take changes in your income into account as well. For example, if you lost your job a month ago but you were steadily employed up to that point, the test will take the drop in your income into account. If your current monthly income is less than the median income for your household size in your state, you pass the means test and you can file for Chapter 7 bankruptcy.
If your household income is above the median income for your household size, you will then have to determine how much disposable income you have. This is done by deducting your monthly expenses from your income. Regular bills such as rent, mortgage, groceries, or medical costs are allowable expenses that you can deduct from your monthly income. There are certain standards as to what will be an allowable expense that you can deduct. It is very important to be thorough and consistent, as failure to accurately and consistently list your expenses could result in your case being thrown out. If after you have deducted allowable expenses, your disposable income is sufficiently low, then you will still be able to file for Chapter 7 bankruptcy relief.
If you can pass the means test, you can file for Chapter 7 bankruptcy. Chapter 7 will allow you to wipe out most of your unsecured debt. In some cases, you may be able to keep certain assets, such as your home, even if there is some limited amount of equity in the asset. It is important to keep in mind that just because you qualify for Chapter 7, it does not mean that you have to go that route or that it would be the better choice for you. Your attorney will be able to talk with you about your goals and which type of bankruptcy best meets your needs.
We can help you understand whether you are eligible for chapter seven bankruptcy and if that is the best choice for you. Call us at (320) 299-4249 for a consultation to talk about your case.