A chapter 13 means test is something you'll need to take before you file for bankruptcy. Every consumer has to take this bankruptcy means test under the new bankruptcy law.
Since it determines whether chapter 13 or chapter 7 bankruptcy is going to be the right option. Wondering why this test is needed and what it's all about?
Here is a closer look at this bankruptcy means test so you can better understand how it works.
How The Chapter 13 Means Test Really Works!
The main objective of a bankruptcy means test is to keep the interest of creditors protected. The test forces people who can actually afford a payment plan to go with a chapter 13 bankruptcy instead of a chapter 7 bankruptcy.
The means test for bankruptcy was actually created back in 2005 so it could limit individuals from simply erasing all their debts. It forces those who have enough income to go with the chapter 13 bankruptcy option if they can afford it. Chapter 13 bankruptcy requires the debtor to repay a lot of the debt they owe over either three years or five years.
So, how does a means test actually work? The test is to determine who is eligible for chapter 13 bankruptcy.
The bankruptcy means test is done by taking a look at the average income of the consumer, looking back over the previous six months before trying to file for bankruptcy. That average is then compared to the median income within the state.
If after the chapter 7 means test it is determined that income is below the median income in the state, then the consumer doesn't have to file for chapter 13 bankruptcy and can instead qualify for chapter 7 bankruptcy.
On the other hand, if after the chapter means test the average income is higher than the state median, more calculations are needed to decide which bankruptcy option is the right one.
Now the living expenses are taken out of the total income and then the result is multiplied by 60, which gives an average income for five years.
If the disposable income is more than $10,000, usually chapter 13 bankruptcy will be required. However, if this income is less than $10,000, then chapter 7 is an option that is available.
If you are contemplating bankruptcy as a way to eliminate your debt, it's important to realize how the chapter means test works. You'll be required to go through this test before you are able to file. You can do this test on your finances on your own.
However, a professional will have to do this bankruptcy means test on your finances if you are going to file for bankruptcy.
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