Financial difficulties can happen to almost anyone, but sometimes things can take a turn for the worst. When the difficulty turns into disaster, you may find that yourself considering the debt relief that a chapter 7 bankruptcy filing could bring. There are very few legal methods of getting rid of debt in an instant, other than a chapter 7 filing, and there is almost nothing you can do to stop foreclosure and debt collection activities as quickly and efficiently as a bankruptcy action. Read on to learn if you might be a candidate for this form of debt relief.
Can You Qualify?
Unfortunately, making the big decision to file is only part of the journey towards a fresh start. Not everyone will qualify to file for a chapter 7 bankruptcy, and one the major stumbling blocks for some is their income. The bankruptcy court, in an effort to prevent fraud through repeated fillings for those who have the means to pay, has some strict limits on what you can earn per year and still file.
The limits are different for each state, and are based on what is called the "median income" for that particular state. When you think about it, it only makes sense; if you have the money to pay your debts, you should not be in bankruptcy court. In fact, the when you "declare" bankruptcy, you are actually pledging (or declaring) that you do not have enough income to pay your debts.
This "test" is actually a part of the bankruptcy package that asks for your income and expenses. You can view it as a kind of budget, but it should be as accurate as possible, since you may be barred from filing if your income is too high. If your income is too high for your state, you can use certain expenses to reduce that number down and still qualify. The calculation is asking for the last six months of income, and you may be able to use higher-than-normal debt obligations to reduce that number. For example, if you have a large mortgage, high medical expenses, higher transportation costs, etc, you may still be able to file. This information goes on Form 22-A in your bankruptcy stack.
Running the Numbers
If you are like most people, you are now curious about the possibility of qualifying. Online calculators for the means test exist, but caution is urged. Even if the calculation looks unpromising, you should not give up on the possibility of filing for a chapter 7 bankruptcy without consulting with a bankruptcy attorney. There may deductions and other factors that you may not be taking into consideration.
Speak to your bankruptcy attorney to learn more about the means test.
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