Exceptions To The Means Test Requirement
Most but not all people who file for Chapter 7 bankruptcy protection must pass the means test in order to qualify.
The following filers may not have to pass the means test after completing the Statement of Exemption from Presumption of Abuse Under §707 form:
- Disabled veterans that file to eliminate debt incurred while on active military duty
- Filers with debt that primarily came from operating a business
- Members of the National Guard or military reservists who are called to active duty before filing
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Expenses To Include In Your Calculation
Also, the expenses calculated for the test do not match the debtors current expenses. Instead, expenses are calculated based on both national and local standards, and not a debtors actual expenses. For example, for the expense categories of food, housekeeping supplies, apparel and services, personal care products and services and miscellaneous, there is a national figure to use, which is updated regularly. Only in some expense categories, such as mortgage and car payments, can a debtor include their actual payments in the means test calculation.
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What Happens To Your Property When You File For Bankruptcy
Bankruptcy doesnt mean automatically getting rid of all your property or life savings. There are exemptions dictated by both your state and the federal government. In some states, you can choose to use either your specific state exemptions or the federal exemptions. Find more about what your state allows here to compare it to the federal exemptions outlined below.
Alternatives To Filing Chapter 7 Bankruptcy
If you are wondering if you should file for bankruptcy, there are many nonprofit consumer credit counseling organizations that have the ability to negotiate more favorable terms with creditors. Its particularly effective with credit-card companies. The repayment program will be managed expertly and fees could be avoided.
Here are some options:
Debt Management Plan Entering into a debt management program can provide relief from interest rates, late fees and penalties from creditors. Under a DMP, which is negotiated by credit counselors, you promise to pay back the full principal over time in an efficiently managed manner.
The debt management program provides an organized monthly payment plan. It provides an opportunity to handle the debt more efficiently than trying to sort it out yourself. By keeping the payments on track, it will be good for your credit score.
Some caveats: There is generally an enrollment and maintenance fee and the DMP is never a guaranteed option. Creditors have no obligation to participate.
Debt Consolidation This option reduces interest rates and combines all of your debts into one manageable monthly payment. Under debt consolidation, you take out a loan, which is used to consolidate and pay off all of your other debts.
Personal Loan for Bad Credit Yes, you can get a personal loan with bad credit, depending on your situation. You can expect high interest rates and should only consider this option if you can truly afford the monthly payment.
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Being Discharged From Bankruptcy
When a debtor receives a discharge order, they are no longer legally required to pay the debts specified in the order. What’s more, any creditor listed on the discharge order cannot legally undertake any type of collection activity against the debtor once the discharge order is in force.
However, not all debts qualify to be discharged. Some of these include tax claims, anything that was not listed by the debtor, child support or alimony payments, personal injury debts, and debts to the government. In addition, any secured creditor can still enforce a lien against property owned by the debtor, provided that the lien is still valid.
Debtors do not necessarily have the right to a discharge. When a petition for bankruptcy has been filed in court, creditors receive a notice and can object if they choose to do so. If they do, they will need to file a complaint in court before the deadline. This leads to the filing of an adversary proceeding to recover money owed or enforce a lien.
The discharge from Chapter 7 is usually granted about four months after the debtor files to petition for bankruptcy. For any other type of bankruptcy, the discharge can occur when it becomes practical.
How Does Chapter 7 Bankruptcy Work
When you file for Chapter 7 bankruptcy, the court places an automatic temporary stay on your current debts. This stops creditors from collecting payments, garnishing your wages, foreclosing on your home, repossessing property, evicting you or turning off your utilities. The court will take legal possession of your property and appoint a bankruptcy trustee to your case.
The trustee’s job is to review your finances and assets and oversee your Chapter 7 bankruptcy. They will sell certain property the bankruptcy won’t let you keep and use the proceeds to repay your creditors. The trustee will also arrange and run a meeting between you and your creditorscalled a creditor meetingwhere you’ll go to a courthouse and answer questions about your filing.
The list of property you don’t have to sell or turn over to creditors , and the total value that you can exempt, varies by state. Some states let you choose between their exemption list and the federal exemptions. But most Chapter 7 bankruptcy cases are “no asset” cases, meaning all of the person’s property is either exempt or there’s a valid lien against the property.
At the end of the process, approximately four to six months from your initial filing, the court will discharge your remaining debts . However, some types of debts generally aren’t dischargeable through bankruptcy, including child support, alimony, court fees, some tax debts and most student loans.
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What Debts Cannot Be Discharged In Bankruptcy
The following debts cannot be discharged in either a Chapter 7 or a Chapter 13 bankruptcy case. If you file Chapter 7, you will still owe these debts after your case is over. If you file Chapter 13, these debts will either be paid in full during your plan, or the balance will remain at the end of your case.
Nondischargeable debts include:
- Unlisted debts, unless the creditor had knowledge of your bankruptcy filing.
- Recent income tax debt and other tax debt.
- Fines imposed for violating the law.
- Student loans, unless you can show that it will cause a hardship for you to repay them.
- Debts you owe under a divorce decree or settlement.
In a Chapter 7 and 13 case, a creditor may object, and a judge may agree, to theseadditional debts being discharged:
- Debts incurred by embezzlement, fraud, or larceny.
- Certain credit purchases made within 90 days or cash advances made within 70 days of filing.
- Restitution or damages awarded in a civil action for willful or malicious injury to a person.
How Does The Means Test Work
The Means Test works the same everywhere you may file your Chapter 7 case, whether it be Atlanta, Georgia or anywhere else in the country. It is a complex formula that considers your income compared to the median income for other households of your size in the county where you live. There are two possible outcomes for the Means Test:
We begin the means test by determining your household size. The rule of thumb for household size is heads on beds or how many people live in your house . Even college age children can be dependents if they still live at home, though any income they bring into the house will be considered. After determining the household size, we look at the GROSS income for debtor, debtors spouse, and any other members of the household for the past SIX MONTHS. This is designed to capture a nice monthly income average, especially if you receive bonuses at certain times of the year.
If your households average income for the past six months is below the MEDIAN INCOME for the county where you live in Georgia, then you pass the means test, and the presumption of abusing the bankruptcy code does not arise. But if your income is ABOVE the MEDIAN INCOME, you are presumed to abuse the bankruptcy code and must consult with an experienced bankruptcy attorney to see if certain deductions can be taken to overcome that presumption.
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Discharging Debts In Bankruptcy
A bankruptcy discharge releases a debtor from being personally responsible for certain types of debts. So, after a bankruptcy discharge, the debtor is no longer legally required to pay any debts that are discharged.
The discharge prohibits the creditors of the debtor from collecting on the debts that have been discharged. This means that creditors have to stop all legal action, telephone calls, letters, and other type of contact with the debtor. This prohibition is permanent for the debts that have been discharged by the bankruptcy court.
You cannot discharge all debts in bankruptcy. Some of the most common debts that you cannot get rid of in bankruptcy are debts from child or spousal support, most student loans, most tax debts, wages you owe people who worked for you, damages for personal injury you caused when driving while intoxicated, debts to government agencies for fines or penalties, and more.
The Bankruptcy Trustee For Chapter 7 Bankruptcy
The court exercises its control through a court-appointed person called a “bankruptcy trustee.” The trustee’s primary duty is to see that your creditors are paid as much as possible of what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid.
The trustee will examine your papers to make sure they are complete and look for nonexempt property to sell for creditors’ benefit. The trustee will also determine whether any financial transactions occurring the year before you filed can be undone to free up assets for creditors. In most Chapter 7 bankruptcy cases, the trustee finds nothing of value to sell.
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Do I Meet The Qualifications For Chapter 7 Bankruptcy
If you do, chances are youll eventually walk away with a new lease on financial life.
The American Bankruptcy Institute reported that 94.3% of Chapter 7 filings between Oct. 1, 2018 and Sept. 30, 2019 were successfully discharged, meaning filers were no longer required to pay the debt.
Here are the standard requirements to qualify for Chapter 7 bankruptcy:
- You must pass a means test, which looks at your income, assets and expenses.
- You cannot have filed a Chapter 7 or Chapter 13 bankruptcy petition that was dismissed in the previous 180 days.
- You cannot have completed a Chapter 7 in the past eight years, or a Chapter 13 in the previous six years.
Deferring Control Of Your Finances
When you file for bankruptcy you are technically leaving your personal finances in the hands of the bankruptcy court. The court manages your finances through the agency of a trustee. The function of the trustee is to see that creditors with claims against you are paid as much as they possibly can be. While the trustee is technically a neutral party, they also get paid a portion of whatever assets they can find of yours to liquidate.
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Chapter 7 Bankruptcy Is A Legal Process That Can Help Individuals Get Relief From Debts By Discharging Or Clearing Some Or All Of Whats Owed
If you qualify, Chapter 7 bankruptcy may allow you to discharge a variety of debts, but typically excludes obligations like child support, student loans or tax debt.
The main benefit of filing for Chapter 7 bankruptcy is that it can give the honest debtor a fresh start, says bankruptcy attorney Richard Symmes, principal attorney at Symmes Law Group.
But it isnt a simple fix-all. The repercussions of filing Chapter 7 bankruptcy can include losing some of your physical assets and having your credit take a major hit.
Chapter 7 bankruptcy may be able to offer the financial reset you need, but you should know about the drawbacks before you consider filing.
Is There An Income Limit For Chapter 7 Bankruptcy
To automatically qualify for Chapter 7, your disposable income must be below the Chapter 7 income limit – specifically it needs to be below the median level for your state. That number varies from state-to-state. If your disposable income exceeds the median in your state, you still may be able to qualify through a means test that includes looking at your income and reasonable expenses to see if you can get that number under the median income for your state.
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If You Don’t Pass The Chapter 7 Means Test
If you don’t pass the means test, you’re limited to using Chapter 13 bankruptcy, which requires you to make monthly payments over a three- to five-year period according to a strict budget monitored by the court. Most people who file for bankruptcy prefer Chapter 7, which requires no repayment. However, Chapter 13 bankruptcy is still the best way to handle specific problems, like curing a default on a mortgage and repaying debts that won’t go away in bankruptcy, such as most taxes and support arrearages.
But before you settle on Chapter 13 bankruptcy, be sure to talk to a lawyer. With expert legal advice, you might find that you’re able to pass the means test after all.
Summary: What You Need To Know About Chapter 7 Bankruptcy Texas Exemptions
The take-home message is that most people who file bankruptcy are worried they will lose something. I hear questions like this all the time.
Will I lose my house in Chapter 7 bankruptcy?
Will I lose my car in Chapter 7 Bankruptcy?
Can I protect my retirement account in Chapter 7 Bankruptcy?
In Texas, you probably wont lose any of your assets as long as you hire an experienced bankruptcy attorney and you are honest with them.
Remember, if you are filing for Chapter 7 bankruptcy it is important that you list all of your assets. There are exemptions available and you may eligible for a no-asset bankruptcy but if you fail to disclose your assets, you risk losing them.
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What Is A Bankruptcy Discharge
A discharged debt literally goes away. It’s no longer collectible. The creditor must write it off. Debts that are likely to be discharged in a bankruptcy proceeding include credit card debts, medical bills, lawsuit judgments, personal loans, obligations under a lease or other contract, and other unsecured debts.
That might seem too good to be true, and there are indeed some drawbacks. Filing for bankruptcy and receiving a discharge will seriously impact your credit, and you must establish to the court’s satisfaction that the discharge is financially necessary. You can’t simply ask the bankruptcy court to discharge your debts because you don’t want to pay them.
You must complete all the requirements for your bankruptcy case to receive a discharge. The court can deny your discharge if you dont take a required financial management course.
Types Of Bankruptcy Discharges
Individual debtors can file for Chapter 7 or Chapter 13 bankruptcy protection. The trustee will liquidate your nonexempt assets and divide the proceeds among your creditors in a Chapter 7 bankruptcy. Any debt that remains will be discharged or erased.
You’ll enter into a payment plan over three to five years that repays all or most of your debts if you file for Chapter 13 protection. Any debt that remains at the end of your repayment plan will be discharged.
A Chapter 13 bankruptcy allows some debts to be discharged that can’t be discharged in Chapter 7 proceedings. This includes marital debts created in a divorce agreement, although not spousal support or alimony, as well as court fees, certain tax-related debts, condo and homeowners’ association fees, debts for retirement loans, and debts that couldn’t be discharged in a previous bankruptcy.
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Not All Debts Can Be Discharged In A Chapter 7
While filing a Chapter 7 bankruptcy can wipe out a majority of the debts you owe, there are certain debts that cannot be eliminated in bankruptcy. Knowing which debts are and are not dis-chargeable will prevent you from making the mistake of filing bankruptcy. For instance, many people falsely believe that medical debts cannot be wiped out by filing a Chapter 7 in Atlanta. This is simply not true. Medical debt is the second highest cause of Georgians filing bankruptcy, and the underlying medical bills are absolutely dis-chargeable.
Who Needs To Fill It Out
If your completed Form 122A-1 shows your income is higher than the median, you must file Form 122A-2. This is the actual means test the calculations you enter on this form determine how much money you have available to pay off other debts.
If that amount is high enough, you may be presumed to have too much income to qualify for Chapter 7 bankruptcy. This is called a presumption of abuse. If Form 122A-2 indicates a presumption of abuse in your case, you may still qualify for Chapter 7 bankruptcy if you can show special circumstances that reduce your income or increase your expenses.
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