Bankruptcy Attorney in Charlotte, NC Can Assess Your Eligibility
If you are considering filing for bankruptcy in Charlotte, North Carolina, it is important to know the proper steps to take. The initial phase of the process is to take the means test. The purpose of this test is to determine whether you should pursue a Chapter 7 or Chapter 13 bankruptcy. It examines many factors to determine your best course of action. It will initially assess whether you should file for a Chapter 7 bankruptcy. The means test has been used to screen individuals who would be better off paying of a portion of their debts. If the debtor is unable to benefit from Chapter 7, they may be eligible for Chapter 13.
What Is the Bankruptcy Means Test?
The means test is designed to help you decide where or not you should file for Chapter 7 or Chapter 13 bankruptcy. More than that, it determines whether or not you qualify for Chapter 7.
For most folks, Chapter 7, also called liquidation bankruptcy, is the preferred form of bankruptcy. Chapter 7 allows you to discharge your debts by liquidating your assets. The liquidation is paid to your creditors, and from there you can have a fresh start.
There are, however, restrictions on what kinds of debts can be discharged, and further, there are restrictions on who qualifies to file for bankruptcy under Chapter 7. That, in essence, is what the bankruptcy means test attempts to determine: whether or not an individual can qualify for Chapter 7.
How Does the Bankruptcy Means Test Work?
The bankruptcy means test limits access to Chapter 7 to those who genuinely cannot pay their debts. These are criteria that the means test employs:
- Is your current monthly income less than the state median? If so, you automatically pass the means test.
- If your current monthly income is greater than the state median, then the courts will determine what your disposable monthly income is. They do this by deducting your monthly payments from your monthly income. The higher your disposable income is, the less the likelihood that you will qualify for Chapter 7 bankruptcy.
For those who are interested in determining whether or not they qualify for Chapter 7 bankruptcy, gathering as much information and documentation as they can about their finances over the last 6 months is an excellent first step. Recent or future changes to your finances will be factored into the court’s decision.
Of those who took bankruptcy means test, 88% passed. This is largely because those who file for Chapter 7 have undergone a financial hardship due to an unexpected medical event, a divorce, or some other difficult situation that changed their finances.
What Is Median Income?
Median income is very similar to the average income of all residents in a state. It’s slightly different, however. This prevents individuals with extremely high incomes from “breaking the curve” so to speak.
The median income varies from one state to the next. It also depends on the size of your household. In 2016, the median household income in the state of North Carolina was $50,584
Calculating Disposable Monthly Income
If your income is higher than the state median, then you enter the second phase of the means test. This is where things get a lot more complicated. The court will consider your monthly expenses such as rent, utilities, and car payments that are for a vehicle that gets you to and from work. They will then add in your debt.
You expenses are then deducted from your monthly income. If this number results in an unsustainably low amount of disposable income, you will pass the means test. If not, then you fail the means test.
To determine whether you will pass the means test, there are a number of forms that you can find online. These include:
Some individuals are exempted from a presumption of abuse. This includes certain members of the armed forces. To determine if you are exempted from the bankruptcy means test, you can fill out for 1221A-1Supp.
I Passed the Means Test. Now What?
Passing the bankruptcy means test does not mean that you automatically qualify for Chapter 7 bankruptcy. The court must look over your documents and make a determination on whether or not you qualify for Chapter 7. In some instances, they will reverse the decision.
Also, passing the means test for Chapter 7 isn’t necessarily the best course of action. There are certain debts that cannot be discharged by Chapter 7 and yet they can be managed by Chapter 13. The correct choice does not depend on your ability to pass the means test but your individual circumstances, what you stand to lose through the liquidation process of Chapter 7, and what kinds of debts you’re attempting to handle.
I Did Not Pass the Means Test. Now What?
The bankruptcy means test is designed to eliminate fraudulent claims against creditors. It also limits who can file under Chapter 7. If you have failed the means test, then that means that the courts have come up with a budget that allows you to pay back your debt without making your financial life unliveable. There is no appeals process available to you. The decision is final.
There are still, however, options available to you.
You May Still Qualify for Chapter 13
If you fail the bankruptcy means test for Chapter 7, you may still qualify to file for bankruptcy under Chapter 13. Chapter 13 can help you discharge much more of your debt than Chapter 7 can. On the other hand, it requires that you repay at least a portion of your debt to your creditors on a strict budget.
It’s important to note that there are some disadvantages to filing for Chapter 7 as well. Aside from liquidating any valuable assets you might have, Chapter 7 will not discharge all kinds of debt. On top of that, Chapter 7 stays on your credit record for ten years. Meanwhile, Chapter 13 only stays on your credit record for 7.
Debt Consolidation: An Alternative to Bankruptcy
Another option might be to contact a debt consolidator. Debt consolidators buy up your debt and offer you in return a fixed interest rate. It means that you will only have to make one payment on your outstanding debt to the debt consolidator.
Filing for bankruptcy is an imperfect solution in an imperfect world. It can help give you a fresh start, but there is a price to pay for that fresh start.
If you want to find out more about the means test and the information you will need, please feel free to contact a Charlotte bankruptcy lawyer from our firm. With more than 15 years of experience, our firm can provide you with the answers you need to successfully navigate this step. The means test is used to distinguish between those who are able to liquidate their assets and those who should establish a payment plan.
Contact a Bankruptcy Lawyer Today
At the Law Office of Jack G. Lezman, PLLC, we have the experience and tools to help you take the means test and file. The means test was established in 2005 when many shifts in bankruptcy law took place. A Charlotte means test lawyer can provide you with the information you need for your case. Contact our firm to discuss how the means test can affect your situation.