Individuals facing sudden financial hardship may decide to file for bankruptcy. A personal bankruptcy filing can delay or fully end collection activity. A successful bankruptcy can also result in the discharge of eligible debts, such as credit card balances and outstanding medical debts.
People who complete bankruptcy can rework their budgets after eliminating certain financial obligations. They may have an easier time paying their most important financial obligations, such as their mortgages and car loan payments.
Many people pursue Chapter 13 bankruptcies because they have more property than they can exempt or earn a relatively competitive income. However, individuals struggling financially due to job loss or medical issues may prefer the rapid results of a Chapter 7 bankruptcy. Not every individual qualifies for a Chapter 7 bankruptcy. Who is eligible for the faster discharge available in a Chapter 7 filing?
People have to pass a means test to qualify
The main considerations for individuals contemplating Chapter 7 bankruptcy are household income and size. To qualify for a Chapter 7 filing, people have to complete a means test. Means testing involves calculating annual income based on what the filer earned over the last six months.
They can adjust their income by reducing it based on certain allowable expenses. They then compare their adjusted income to the median income reported for a household of the same size in their state. The process can be relatively complex in some cases.
Those who might be on the edge of qualifying may need help going over their financial records and ensuring they make all potential adjustments. Small oversights can be the difference between passing and failing the means test for some people. Those who can establish that their income is low enough given means testing rules can pursue a Chapter 7 bankruptcy. They may be able to discharge their eligible debts within a few months of their initial filing.
Evaluating household finances can help people determine whether they may qualify for Chapter 7 bankruptcy. For those who do qualify, Chapter 7 can offer a variety of benefits, including a much faster overall process than a Chapter 13 bankruptcy. Prospective filers worrying about means testing may need help evaluating their options.