In 2005, the bankruptcy rules were changed to prevent people from filing the bankruptcy chapter they wanted. Instead, they’re required to file the bankruptcy chapter they could afford. For instance, many people were filing chapter 7, but could afford to file chapter 13. Chapter 7 is a way to eliminate unsecured debts. This means a person isn’t required to repay creditors. However, they could afford to repay their debts via chapter 13. Chapter 13 is called wage earner’s bankruptcy because they are responsible for repaying secured and secured debts every month for three to five years.
What is a Bankruptcy Means Test?
A means test is one way the bankruptcy courts determines whether the person can file chapter 7 or chapter 13. It’s not a standardized test an individual must pass. Instead, it is a test to decide if the person makes enough money to file chapter 7.
Chapter 7 Means Test Varies by State
To determine whether a person can pass the means test, they must determine their household size. Each state has a different median income for each household size. For example, Georgia means test for a household of four people is $68,085.00. This figure is the amount used for a person wanting to file chapter 7 with and are living with three other people. The number is divided by 12 to find out the monthly total for a household size.
Chapter 7 Bankruptcy Means Test Subtracts Monthly Income from Georgia Median Income
A person must add their monthly income. This income includes sources of income such as retirement plans, pensions, business income and rental income. If the person is unemployed expenses, they must add that amount too.
Next, the chapter 7 bankruptcy effingham county ga means test require the individual to add their expenses. These expenses are things such as car payments, mortgage, utilities and childcare. This total is then subtracted from your income total. This is the amount of disposable income.
What is Disposable Income in a Means Test?
Disposable income refers to the amount paid after all monthly expenses are paid. This is the money a person may save or use to pay for coffee or the movies. If a person has disposable income left after their monthly bills are paid, they may not file chapter 7. This means they failed the test because they can afford to use the money left over to pay creditors in a chapter 13.
Talk to an Effingham County Bankruptcy Lawyer about Filing Chapter 7
It’s important to discuss filing chapter 7 with a bankruptcy lawyer. Sometimes a person may complete the means test on their own and file it. They may conclude they can’t file chapter 7. However, that may not be the case. They may not have added all of their expenses or the wrong income. These factors can make a person fail their means test. Chapter 7 is a legal way to eliminate debts. It’s important to do everything right to obtain financial relief.