- Depending on your situation, you will either file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy discharges most debts except debts secured by a home or cars, child support and student loans. A Chapter 13 bankruptcy allows you to consolidate your debt and pay back a percentage of what you owe through a court-managed payment plan over the course of three to five years.
- The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires bankruptcy filers to submit to the Means Test. The purpose of this law is to prevent bankruptcy fraud and also to ensure that those who have the means to pay some of their debts do so. The Means Test determines whether or not you can file for Chapter 7 bankruptcy. If your average monthly income for the past six months is more than the median income in your state, you may not be able to file Chapter 7 bankruptcy. Instead, you will be required to file a Chapter 13 bankruptcy and you will be required to pay your monthly disposable income toward your debt. Your disposable income is the income that remains at the end of the month after monthly living expenses have been accounted for.
- Bankruptcy courts use the Census Bureau's Median Family Income reports to assess whether or not bankruptcy filers can file Chapter 7 or Chapter 13 bankruptcy. For example, as of 2010 the median income for a family of four in Alabama is $62,983 and the median income for a family of two in Alaska is $74,242. Median incomes are based on both state and family size. Median income varies widely by state.
- If after you file a Chapter 13 bankruptcy your income situation changes due to job loss, income reduction or illness, you can petition to have your bankruptcy converted from a Chapter 13 to a Chapter 7. You will need to contact your lawyer if you think you may qualify for a conversion to a Chapter 7 bankruptcy. The lawyer will likely charge additional filing fees and lawyer fees.
Bankruptcy Types
Means Test
Median Income
Bankruptcy Conversion
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