In times of financial difficulty there are many options for individual consumers to find relief from the hardship of debt. One of the most effective methods of debt relief is the process of bankruptcy. Filing for bankruptcy provides a government organized relief system that offers long-term results. The most common types of debt, such as credit card debt, medical debt and mortgages, can be treated and discharged in bankruptcy. If you’re considering filing for bankruptcy relief, Behm Law Group, Ltd. can provide guidance and protection in Chapter 13 and Chapter 7 bankruptcy in St. Peter, MN.
Both Chapter 13 and Chapter 7 bankruptcy offer debt relief in different formats. With Chapter 13, your debts will be worked into a repayment plan lasting three to five years where the terms of payment can be much more lenient and beneficial. In Chapter 7 bankruptcy, your debts will be discharged in exchange for the collection and sale of any non-exempt assets by the chapter 7 bankruptcy trustee. However, the vast majority of chapter 7 cases are “no asset” cases where there are no non-exempt assets that are collected and sold by the chapter 7 trustee and where the only things that are lost are filers’ debts. This means Chapter 7 is ideal for most filers’ situations, but without proper vetting, some might be able to abuse this type of bankruptcy. To prevent bankruptcy abuse, the court applies a method for the examination of the financial conditions of filers called the Means Test.
The Means Test works in two steps to determine if your income-to-debt ratio merits eligibility for Chapter 7 bankruptcy. Put simply, if your disposable income is equal to or lower than the state median disposable income of a similar sized household, you qualify for Chapter 7 bankruptcy relief.
• The Means Test calculates your current household disposable income. If your initial income, without taking debts into account, is lower than the state median disposable income, you qualify for Chapter 7 and can continue to file.
• If the Means Test calculates that your disposable income is higher than the state median disposable income, other steps must be performed in the examination of your financial situation. To complete this calculation, you must complete a significantly broader range of paperwork. This paperwork determines your disposable income after all reasonable and necessary living expenses are accounted for. The types and allowed amounts of these expenses (such as food, gas, and other necessities) are set forth in the bankruptcy code itself and are used to determine your disposable income. If your disposable income is equal to or higher than the median disposable income for a household of similar size, you would not be eligible for Chapter 7 bankruptcy.
If you can’t qualify for Chapter 7 bankruptcy relief after going through the Means Test, you still will most likely be eligible for Chapter 13 bankruptcy relief. If your disposable income is determined to be higher than the state median disposable income for a similar sized household, your Chapter 13 repayment plan will be scheduled for a five-year period. If your disposable income is lower than the state median disposable income as determined by the Means Test and you still choose to file for Chapter 13 bankruptcy relief, your repayment plan will be set for a three-year period.
To learn more about how the Means Test will decide the course of your Chapter 13 or Chapter 7 bankruptcy in St. Peter, MN, contact Behm Law Group, Ltd. at (507) 387-7200 today or stephen@mankatobankruptcy.com.
