Chapter 7 bankruptcy is a common form of personal bankruptcy that Louisiana residents may use to get out from under their oppressive and overwhelming debts. Like other forms of bankruptcy, Chapter 7 bankruptcy requires individuals to meet certain criteria to qualify. Income is an important factor in determining if a person may use Chapter 7 to alleviate their debts, and this post will discuss the means test and how it assesses a filer’s income for bankruptcy purposes.
An income evaluation
Chapter 7 bankruptcy helps debtors discharge qualifying liabilities so that they may secure a fresh financial start. However, not everyone may use it. Only individuals with a requisitely low income may seek Chapter 7 protections.
First, an individual’s current monthly income is compared to the state’s median income. If the individual’s income is below the median, then they will qualify for Chapter 7 bankruptcy. If not, they must satisfy the means test to use Chapter 7.
The means test involves several steps:
- First, an evaluation of a debtor’s household expenses is made. If after deducting household expenses their income still exceeds the state’s median, they may not qualify for Chapter 7 bankruptcy and may need to pursue Chapter 13 bankruptcy.
- Second, if a person has extenuating circumstances, such as the loss of a job, that will prevent then from paying off unsecured debts, they may be able to explain why they should still qualify for Chapter 7 bankruptcy despite failing the means test.
It is important that debtors speak with trusted advisors about any of their bankruptcy options before beginning the process.
Options for when the means test is failed
As suggested, it is possible for a debtor to fail the means test. This does not mean that they are barred from all possible bankruptcy proceedings. It only means that their income is too high to qualify for Chapter 7 bankruptcy.
Chapter 13 bankruptcy is another consumer bankruptcy option that allows a debtor to set up a repayment plan to satisfy their creditors over time. There are different qualifications and requirements for debtors seeking to use Chapter 13 bankruptcy, and information on both forms of consumer bankruptcy can be sought from local bankruptcy lawyers.
Bankruptcy is not a sign of failure or defeat. It is a legal process that helps hard-working individuals find solid financial footing after facing challenges. There are benefits and drawbacks to both forms of personal bankruptcy mentioned in this post, and all individuals who are considering bankruptcy can benefit from seeking advice on their own unique legal needs.