This question is asked time and time again by potential clients. The only accurate answer is maybe, depending on your income, expenses and assets. Bankruptcy is all about your income, expenses and assets and how they interact to form a financial picture.
Chapter 7 Bankruptcy
To qualify to file a Chapter 7 of the Bankruptcy Code the means test must be passed or be negative. If the means test is zero or negative, then that means there is no monthly disposable income to pay back unsecured creditors, and therefore a complete discharge of debts is acceptable. This test was created in 2005 when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was passed by Congress. The test takes the average income for the six-month period prior to the month the bankruptcy case was filed and compares that average to the median income for the county lived in. The means test then applies certain standard deductions for food, housing, utilities, vehicle expenses, health care costs and other deductions based upon the number of people in the household. The problem is this test is a fiction, not actual reality. The means test attempts to apply a standardized system on households that are far from the same.
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Chapter 13 Bankruptcy
There are quite a few reasons to file a Chapter 13 bankruptcy. If you are behind on mortgage payments, getting rid of a second or third mortgage or line of credit, behind on car payments, or just make a lot of money each monthly, a 13 may be the best choice. Just like a Chapter 7 bankruptcy, Chapter 13 bankruptcy is a function of income, expenses and assets. Chapter 13 bankruptcy also incorporates the means test. The means test in a Chapter 13 bankruptcy helps to determine how much monthly disposable income is available to pay back unsecured creditors in the Chapter 13 plan of reorganization. Just like in a Chapter 7 bankruptcy there may not be any monthly disposable income to pay back unsecured debt.
The means test is a very complicated form that is the essential part of filing for bankruptcy protection since the passage of the BAPCPA in 2005. It is imperative that anyone facing burdensome debt consult with a qualified bankruptcy attorney to determine if Chapter 7 or Chapter 13 is the right course of action. The Means Test was developed in 2005 in an attempt to lessen the number of bankruptcy filings in Chapter 7 and make people repay some of their debt in a Chapter 13 over three to five years.
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