Bankruptcy chapters and means test - An Insight by Lyle Solomon

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Lyle Solomon Esq.

Auburn, CA

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Debt Settlement

Bankruptcy chapters and means test

Many people prefer filing for Chapter 7 bankruptcy rather than Chapter 13 because of distinct advantages. Chapter 7 allows the discharge of most credit card debt and medical bills. However, not just anyone qualifies for Chapter 7. You will have to qualify by meeting a means test, or an income test.

What is a Means test?

The bankruptcy means test determines whether or not an individual can file for Chapter 7. It was instituted to help limit the number of people who could reduce debt by filing for bankruptcy, but most people who go through the means test are easily eligible. For those who do not pass the means test, there are other options such as liquidating assets, restructuring debts, or filing Chapter 13 bankruptcy.

How does the means test work?

The means test determines if an individual is eligible to file for Chapter 7 or if they’ll need to file Chapter 13. The means test is comprised of two sections. Both sections are designed to determine if there is any disposable income that can go toward paying off existing debts. A bankruptcy lawyer will fill out the form and then submit it to the court along with the rest of the filing paperwork. The test is only for those who have primarily consumer debts such as medical or credit card debts. If debt is primarily from a business owned by the individual, the means test is not necessary. The means test may also be used for a Chapter 13 bankruptcy to determine how the repayment schedule will work.

Filling Out the Forms

A means test involves two forms a Form 122A-1 and Form 122A-2. Based on the information on these forms, calculations will be made to determine if you pass the means test or not. Anyone who desires to file for Chapter 7 bankruptcy will have to fill out the first form. Only certain individuals will need to follow up with the second form.

  • Form 122A-1: This form focuses on marital and tax filing status. It will include a look at monthly income and compares it to the median income in the state of residence.
  • Form 122A-2: This form is only necessary if the Form 122A-1 indicated a monthly income higher than the median income for their state. It is more of the “means test” in that it determines how much money is available to pay off other debts.

Passing the means test does not guarantee Chapter 7 bankruptcy. There are other factors like completing bankruptcy counseling, filing petitions, and attending creditor meetings to answer questions about debts, property, and financial circumstances.

What if you fail the means test?

It’s not necessarily the end for those who fail the means test. Filing for Chapter 13 bankruptcy is an option. Or after six months, individuals can try the means test again if they feel they now meet the threshold.

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