When filing for bankruptcy, understanding the steps you must take during this complicated process is critical to ensure you can reap the full benefits of this process. As such, one of the most important steps you must know about during Chapter 7 bankruptcy is the means test. If you’re unfamiliar with this process, the following blog explores what you must know. In addition, you’ll discover the importance of working with an Orange County Chapter 7 bankruptcy lawyer to guide you through these difficult times.
What Is the Chapter 7 Means Test and How Do I Pass?
Chapter 7 is a form of bankruptcy in which your assets are liquidated as a means of repaying creditors before having the remainder of the eligible debts discharged with the closure of your case. This form of bankruptcy is ideal for most as it can generally conclude within six months, making this a relatively quick process. However, it does place your property at risk or being sold to repay creditors.
It’s imperative to understand that if you wish to file for Chapter 7, you must pass what’s known as a means test. Essentially, this compares your annual income to the average income of similarly sized households in your state. If you fall below the average, you may pursue Chapter 7. However, if you do not pass because your income is too high, you may have to consider other options, like Chapter 13.
If your income is too high, you may be able to reduce it by factoring in your debts. Some debts carry more weight in this process. This includes secured debts, like mortgages or car payments. Additionally, overdue taxes, healthcare expenses, and care for those with disabilities can also be deducted to help reduce your disposable income and qualify for Chapter 7.
What Can I Do if I Fail?
If you fail the means test because your income is too high, even after deducting qualified expenses, it’s important to understand that you can still pursue bankruptcy. However, instead of Chapter 7, you may have to pursue Chapter 13. Chapter 13 is a much different process, as unlike Chapter 7, it can take three to five years to complete, depending on the circumstances of your case.
When you file Chapter 13, your debts will be consolidated into one monthly payment. You will make the payment to your trustee, who then distributes the funds to each creditor. One of the main benefits of Chapter 13 is that it allows you to keep your property, as you will not have to liqudate any assets to repay creditors.
Filing for bankruptcy can be an incredibly complicated process that requires considerable planning and attention to ensure that no errors occur. Unfortunately, making mistakes when filing or during bankruptcy can result in delays and even the dismissal of your case. As such, it is in your best interest to connect with an experienced attorney from the Law Offices of Michael D. Pinsky, P.C. Our team understands how complicated these matters can be, which is why we are committed to helping you through this process. Contact us today to learn how we can fight for you.