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When there is unmanageable debt and you don’t see a secured financial future of yours then unwilling you have to file for Bankruptcy.
Chapter 7 bankruptcy in most cases is the best aid to a debtor. Here almost all the debts are cleared but the court doesn’t just let anyone file for chapter 7 liquidation bankruptcy.
To separate those debtors who can repay some of their debts, the US bankruptcy code has a ‘means test’ to see who qualifies for chapter 7 bankruptcy and who doesn’t.
The means test compares the last 6 months of income of the debtor to his or her debts. They will see if the debtors can gradually pay off the debts or not, if they can it is very unlikely that the court will allow this debtor to file for chapter 7 bankruptcy. The higher the income of the debtor relative to debt the lower the chances of him or her filing for chapter 7 bankruptcy.
If not qualified for chapter 7 bankruptcy then their case will be converted to a chapter 13 bankruptcy where he or she will pay off some of the debt while keeping their assets safe gradually over 3 to 5 years.
There are two steps of the means test
First, see whether the debtor’s income is below the chapter 7 income limit, which is the median of the state where the petition is filed. If the income is below the median for the last 6 months then it will be unlikely for it to change soon. So the test is passed and you can proceed.
Most of the applicants pass the first step but for those who don’t, there is a step 2.
Step 2 requires the debtor to document all the necessary expenses such as medical bills, food, etc. These are deemed allowable expenses as it is necessary to live. And the rest of the income which might be going toward non-necessary things goes towards your debt repayment.
You must be careful if you are among the people who have to pass the second step as the court overlooks everything. You will need to be careful about mistakes and mis-categorized entries. The court will then be looking if you are spending too much if your rent is more than the IRS standard rent payment in your region then only some part of the rent money comes under allowable expenses.
If you pass the second step and your disposable income is low enough then you are allowed to file for chapter 7 bankruptcy.
You might not be able to file for personal bankruptcy if your debt is largely the result of a business problem. Business bankruptcy is necessary for those whose debt is related to a business, including a partnership, a limited liability company, or a corporation. Some of a personal filer’s debt can be business-related, but most of it must be consumer debt.
The good news about business debtors is that they are exempted from the means test, that is if your debt is mostly business debt then you don’t have to show you are under median income or not as well as your disposable income is there or not.
Keep in mind that bankruptcy filing is for those who have excessive debt and need some relief otherwise they will not be able to maintain a proper living.
Before you decide to file you should consult an attorney and look into some credit counselling classes.
If you want good attorney, reach the Recovery law group – (888-297-6203) or visit https://www.recoverylawgroup.com/bankruptcy/.