Chapter 7 or liquidation bankruptcy is preferred by most people since it enables people to get a discharge within a smaller time frame (3-6 months) compared to Chapter 13 bankruptcy (3-5 years). Moreover, with various exemptions available, people are often able to protect almost their entire equity in their assets and get away with paying little towards their debts before getting them discharged. However, the catch is that if you wish to file under Chapter 7 bankruptcy, you need to pass the means test. As per lawyers of Los Angeles based bankruptcy law firm Recovery Law Group, the means test is used to assess your ability to pay back your debts. This considers your income, assets and your debts. If you can pay back your debts, you are not eligible for Chapter 7 bankruptcy and can opt for Chapter 13 bankruptcy.
What happens in a means test?
Bankruptcy ensures that you do not have to undergo excessive financial strain. At the same time, the government needs to be fair to the creditors too. Thus, if you can pay off your debts (some portion or entire amount), you can opt for Chapter 13 bankruptcy. However, in case you cannot pay any debt, Chapter 7 bankruptcy Los Angeles can help you get out of the tricky financial situation. The means test is used to assess whether you are eligible for Chapter 7 bankruptcy or not. In this case, your past six-month income (before filing for bankruptcy) is compared to the mean income of the state.
- In case your income is less than the average income for a household of a similar number of members in your state, then you are eligible for filing Chapter 7 bankruptcy.
- If your income is more than the state average, then it is important to determine if you have enough disposable income to repay your debts.
If you fall in the former category, you can end up getting a discharge on your debts through Chapter 7 bankruptcy. If, however, your income is above the state median, then calculations are done whether you are eligible for Chapter 13 bankruptcy or need to seek some other option. To file for Chapter 13 bankruptcy, you need to have enough disposable income (income left after excluding expenses necessary for a living) to pay your unsecured debts. In case the disposable income is equal to or more than the state-set amount, you cannot file for Chapter 7 bankruptcy, but have the option of Chapter 13 bankruptcy where a repayment plan for a duration of 3-5 years will be drafted based on your disposable income.
Irrespective of your financial situation and your eligibility for different bankruptcy chapters, having an experienced bankruptcy attorney can be an asset. An adept lawyer with experience in handling similar cases can reduce your losses and help you get through with the discharge. In case you are considering bankruptcy as a viable solution to your financial problems, call 888-297-6023 to speak with experienced bankruptcy lawyers.