Are You Considering Bankruptcy in Richmond, VA?
What Is a Means Test?
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in Richmond, VA, your attorney will likely mention a “means test.” But what is a means test in bankruptcy, and what does it entail?
How the Means Test Works
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in Richmond, VA, your attorney will likely mention a “means test.” But what is a means test in bankruptcy, and what does it entail?
A means test is an examination of your
income and ability to pay your creditors to determine whether you are eligible
to file for Chapter 7 or Chapter 13 bankruptcy. The means test was put in place
to prevent abuse of the Chapter 7 bankruptcy provision, and if you are
considering Chapter 7, you will have to take this test first.
Chapter 7 vs Chapter 13
For many individuals
struggling with debt, Chapter 7 is the most preferred bankruptcy option because
more debt is forgiven. Under Chapter 7, you are saying you are almost
completely unable to resolve your debts. Some of your eligible assets may be
sold for partial repayment, but remaining unpaid debts are generally forgiven.
By contrast,
Chapter 13 bankruptcy is for individuals who have some ability to repay their
debts, and it involves reorganizing and setting up repayment plans with creditors.
Under Chapter 13, you get to keep your assets, but you still must repay your
debts over time.
How the Means Test Works
If you fear
that you won’t be eligible for Chapter 7 because of your income, understand
that the means test for bankruptcy measures not only your income, but your
“disposable” income, in order to determine your ability to repay your
creditors. If you have a lot of expenses that wouldn’t be easily removed from
the equation, you may still qualify for Chapter 7 under the means test even if
your income is high.
Your income
from the past six months is averaged to determine your “current monthly
income.” This amount is compared against your eligible monthly expenses to
determine how much of your income is disposable. If this amount is below a
certain threshold, you may be eligible to file for Chapter 7; if not, your
attorney may recommend filing for Chapter 13.
The Clinger
Law Firm is a team of expert bankruptcy lawyers in Richmond, VA who can advise you about the means
test for bankruptcy and help you determine your options. To learn more about
filing for bankruptcy in Richmond, VA, call us for a free initial consultation
at 804-788-1655.