How will the new bankruptcy means test affect you?
Many people find themselves in such severe financial circumstances that bankruptcy may be the only way out for them. However, because of the new bankruptcy law, many have made a false assumption that bankruptcy has been eliminated by the government.
Bankruptcy is still a viable option, but there are some new rules that you should be aware of. The biggest change in the bankruptcy law is something called the means test.
When it comes to bankruptcy, it seems like there’s been an ongoing battle between creditors and debtors for a long time. In the U.S., for example, there have been a series of bankruptcy laws during our history which sometimes benefited the creditors and sometimes the consumer. Recently, a law was passed by Congress as a result of extensive lobbying by the credit card industry.
The purpose of the law is supposedly to make sure that bankruptcy is not being abused by people who simply don’t want to pay their debts. The main provision of the new law was the means test, which makes consumer show all income and expenses in order to prove the bankruptcy really is needed. In other words, the question is whether you have the means to pay off your debts.
Simply put, the means test tries to determine whether you make too much money (or have too few expenses) to qualify for bankruptcy. If your annual salary is unusually low when compared to other salaries in your state, then the means test does not even apply to you.
However, if your income is higher than the average, you’ll have to take some extra measures to prove the bankruptcy is a legitimate option for you.
If the court thinks that you make plenty of money and don’t need a chapter 7 bankruptcy, you may be forced to file for chapter 13 instead. Chapter 13 bankruptcy, by the way, gives you a payment plan instead of simply wiping out your debt.
The good news is that many people will still qualify for bankruptcy, even though the process itself has become more complex. You simply need to have good legal advice to guide you through the difficult maze.
