Many people choose to file for bankruptcy under Chapter 7, rather than Chapter 13, because a Chapter 7 bankruptcy is simpler and faster. A Chapter 7 case is over in a matter of months, while a Chapter 13 case can take as long as 5 years to complete. A Chapter 7 bankruptcy will eliminate all your dischargeable debts, while a Chapter 13 bankruptcy will require you to repay at least some portion of them. Even though a Chapter 13 case is more complicated, for some it can be the better choice because it allows them to keep property that they would lose in a Chapter 7 bankruptcy.
Before Congress changed the bankruptcy law in 2005, debtors could pick which Chapter they preferred to file under. Then Congress changed the law to remedy what it perceived to be an abuse of the bankruptcy system. A majority of Congress believed that too many debtors who had enough income to repay some of their debts were filing under Chapter 7. The new law created a means test that forces higher income debtors to file a Chapter 13 bankruptcy.
The means test applies to debtors with primarily consumer debt. If more than 50 percent of your debts are business debts, you do not need to pass the means test to qualify for Chapter 7.
Completing the means test is a little like filling out a complicated tax return. Most debtors can benefit from the assistance of a Bryan bankruptcy lawyer to ensure the form is completed correctly. First, you must calculate your average monthly income for the six preceding calendar months. After annualizing it by multiplying by 12, you compare it to your state's median income for households your size. If your income is below the state median, you qualify for Chapter 7. If not, you must do further calculations to compute your monthly disposable income.
From your average monthly income, you deduct various living allowances set by the IRS, as well as some of your actual expenses and actual payments for certain debts to arrive at your disposable monthly income. Disposable monthly income is considered to be the amount you would have left over to pay your creditors after paying necessary expenses each month. If you have enough left over to pay a specified minimum amount of your debt over a five year period, you will not qualify to file under Chapter 7.
Most people find the means test difficult and confusing. A knowledgeable bankruptcy attorney can let you know exactly what income and expense information you need to provide and can perform the calculations for you. For assistance with your bankruptcy case, please contact the Texas bankruptcy attorneys at the Peterson Law Group. Phone us at 979-703-7014 to schedule your consultation.