Means Test For Chapter 7 Bankruptcy

The means test was created to limit the use of Chapter 7 bankruptcy to those who actually do not have income or money to pay their debts

. It works by reducing accurate monthly expenditures from your current monthly income, your average income above the six calendar months before you file for bankruptcy, to arrive at your monthly disposable income. If your disposable income is higher, you are more likely not allowed to use Chapter 7 bankruptcy.

Under the new bankruptcy law that went into effect in October of 2005, bankruptcy applicants who wish to file under Chapter 7 should meet certain eligibility requirements based on a "means test." Under the means test, if your current monthly income is less than the median income in your state, you can file for bankruptcy under Chapter 7. The purpose of this is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to repay at least a fraction of your unsecured debts over a five-year repayment period.

Filing bankruptcy allows a person to clear off his debts, prevent foreclosure and stop creditor harassment which is usually in the form of phone calls and letters. It is useful tools for defaulters who need to get their debts eliminated or want some additional time for the repayment of bills and gives them an opportunity to resolve the problems in hand. Filing bankruptcy has helped millions of people to get out of their debts but a quick or uneducated decision can cause more troubles than already present. Chapter 7 bankruptcy provides an opportunity for instant elimination of all unsecured debts like credit card debt and medical bills. It also gives protection for the filer's property and may be able to stop foreclosure.

When most people think of bankruptcy, they think in terms of Chapter 7, where unsecured debts are normally discharged in full. Bankruptcy of any types is a difficult ordeal at best, but at least with Chapter 7, a debtor was able to wipe out their debts in full and get a good start. Chapter 13, however, is another story, since the debtor must pay back a significant portion of the debt over a 3-5 year period, with 5 years being the standard under the new law.

Take into consideration, that the means test only applies to individual debtors, not business entities, and only if the debt is mostly consumer debt, which is debt incurred by an individual primarily for a personal, family, or household purpose. It does not include business debt or mortgages, nor does it include debt which is incurred non-voluntarily, such as those for taxes or judicial judgments. If most of the debt is not consumer debt, either by number of loans or amount, then the means test is not appropriate. However, if the number and amounts of consumer and non-consumer loans is close, then the court will look at other factors, such as the types and amounts of the loans, and what they were used for. For more information about bankruptcy, you can visit http://www.onlinebkassist.com.

by: Steve

POST COMMENT

How To Declare Personal Bankruptcy? Bankruptcy Foreclosure Help Chapter 7 Bankruptcy Support Bankruptcy Laws: How To Fix Debts? How To Make The Interests Of Customers Improved For Bank Filing Chapter 7 Bankruptcy Can Mean A Fresh Start Types of Bankruptcy County Court Judgment - What Should I Do About It What Are The Implications Of A Winding Up Petition Why Is Company Administration Not The Best Solution To Save A Failing Company Know Where To File For Bankruptcy The Truth About Bankruptcy Is Debt Relief Legal Through Bankruptcy?