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While filing for bankruptcy it is important to note that federal and state laws provide exemptions that allow bankruptcy filers to keep some amount of property to start their life afresh. Individuals who file for bankruptcy prefer to opt for Chapter 7 bankruptcy. This is primarily because you get a discharge within 4 to 6 months without paying for anything. Chapter 7 bankruptcy is meant for filers with little to no income and most of their property is exempted. However, there are stringent laws for filing for Chapter 7 bankruptcy. The Bankruptcy Means Test is used to check whether a debtor can qualify for this chapter or not.
To be eligible for Chapter 7 bankruptcy, the filer’s average household income for the past 6 months before the bankruptcy filing is compared to the state’s median average for a household of a similar number of individuals. If this income is below the state’s median, the individual can file for Chapter 7 bankruptcy. However, suppose this income is above the state’s median. In that case, filing for this bankruptcy chapter is determined after determining the disposable income left after calculating essential expenses. If the disposable income is sufficient to finance a repayment plan, then the individual should file for a chapter 13 bankruptcy. However, if the income is insufficient, the individual can file for Chapter 7 bankruptcy.
Who can bypass the means test?
While every bankruptcy filer who wishes to file for Chapter 7 bankruptcy needs to undergo the means test to determine their eligibility for the chapter, this test does not apply to disabled veterans who had taken debts while they were on active duty or serving in the homeland for defense activities. The exclusion is applicable if the veteran’s disability rating is 30% or more, and more than 50% of the debt was acquired while they were serving in the country. Another exclusion to the means test is for debts that originated majorly due to operating a business. In this case, the means test is inapplicable, and the individual may file for Chapter 7 bankruptcy.
How is your income calculated?
To calculate the income sources such as wages, bonus, overtime, interests, dividends, rental and property income, annuity payments, disability insurance, regular child or spousal support, pension and retirement income, workers compensation, unemployment compensation, and gross income from a business, farm, or profession are considered. However, some sources of income such as Social Security benefits and insurance, tax refunds, Supplemental Security Income, and temporary assistance for needy families are not included while calculating the income of the bankruptcy filer.
Options if you fail the means test
An individual who fails to pass the Bankruptcy Means Test can file for chapter 13 bankruptcy or site special circumstances such as a serious medical issue, recent unemployment, recent divorce, subsequent alimony, and spousal support, high rent, etc., as issues to support your case. By providing documents for additional expenses against your income, you might be able to pass the means test. Otherwise, you can file for chapter 13 bankruptcy to get rid of your debts. In the 3 to 5 years chapter 13 repayment plan, you must pay your priority unsecured debts as well as try to clear a portion of your non-priority unsecured debts too.
Experienced bankruptcy lawyers can help you understand the nuances of the means test. You can call 888-297-6203 to discuss your options while filing for bankruptcy with bankruptcy lawyers in Los Angeles.