Chapter 7 Bankruptcy
In accordance with recent modifications to bankruptcy law, a means test is administered to determine whether an individual qualifies for Chapter 7 bankruptcy. This test is applicable only to Chapter 7 personal bankruptcy filings, i.e. individuals who intend to discharge predominantly consumer debt. This test compared an individual's annual income to the median income in the state in which the individual resides. Individual annual income is calculated by multiplying the individual's average total monthly income for the six months preceding the filing date by 12 months.
If an individual's income is less than the median income in his or her state of residence, the debtor may file under Chapter 7. If it exceeds the median income, an additional assessment of income and expenses is conducted to determine the ability to repay under Chapter 13. If the amount of disposable income exceeds $6,575 over a five-year period, Chapter 7 is presumed to be abusive and Chapter 13 is advised. A competent attorney can readily present the income and expenses in a manner that satisfies the Chapter 7 filing requirements. In fact, 85 percent of individuals do not have to go that far, as their income is lower than the state's median income.
Chapter 13 Bankruptcy
Chapter 13 is appropriate for those who did not pass the Chapter 7 means examination. Chapter 13 is a common option for people with high incomes that significantly transcend the average income in their region. Chapter 13 bankruptcy is available to consumers with a steady income who owe unsecured debts of $360,475 or less and secured debts of $1,081,400 or less. These individuals should have a monthly disposable income of at least $100 to make installments under a debt repayment plan. The most difficult aspect of filing under Chapter 13 is not qualification, but rather the design of a debt repayment plan. To reduce their monthly obligations, debtors should claim as many allowable living expenses as possible. An experienced law firm may be able to structure your disposable income in a manner that will enable minimal Chapter 13 repayments that will satisfy the trustees.
Insolvency is a complex procedure that necessitates in-depth knowledge of bankruptcy laws and extensive experience in the field. Many consumers make the error of attempting a do-it-yourself approach, only to discover that they are ineligible for Chapter 7 and must make substantial debt repayments under Chapter 13 provisions. To avoid common errors, it is highly recommended to hire an experienced bankruptcy attorney. The majority of bankruptcy attorneys offer free initial consultations and can answer any concerns you may have as well as devise a cost-effective bankruptcy filing strategy.""
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