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There are different types of bankruptcy that you can file for and in order to determine eligibility, a means test is used. There is Chapter 7 bankruptcy, Chapter 13 bankruptcy, and Chapter 11 bankruptcy, so discuss your situation with a skilled attorney to determine your best option. Most often, when you think of bankruptcy you are thinking of a Chapter 7 where your debts are wiped out and you could lose property.
This is why bankruptcy myths come about where people believe they will lose everything they have if they file or that bankruptcy rids you of all your debts. Neither of those statements are true but unfortunately, many believe that. A Chapter 7 bankruptcy does involve discharged debt, but not all debts and it could involve some asset liquidation, but not everything you own. Due to the significant relief given from discharged debt, this type of bankruptcy is reserved for people who truly cannot afford to pay off their debts. In order to make sure that Chapter 7 filers actually need this type of bankruptcy, a means test is used.
There are several phases to this test, the first phase involves finding an average income. Generally the test will take into account an average of the last six months of your income to get a reliable number. That number is then compared to the average income for your household size in the state that you reside in. If your income is below the average income for your state, you automatically qualify for a Chapter 7 means test.
If it is above the average income, the second phase of the means test would begin. In this phase, the average income that was found in phase one would have your living expenses subtracted out. Once your living expenses are deducted, the number will represent your disposable income. If the test shows that you can afford $100 to pay debts, you may not qualify for a Chapter 7 bankruptcy, but phase three would begin. If it is determined that you cannot afford those payments, you may qualify for a Chapter 7 automatically, without phase three.
The third phase of the means test looks further into your monthly disposable income. If your disposable income is less than $100, you could still be eligible for a Chapter 7 bankruptcy. There are some instances if your available income is between 100 and 166.66 dollars each month, you could be eligible as well. The calculation would involve comparing the amount you have available and the amount of debt you have. If you make enough to pay 25% of your debt, you may not qualify. If your disposable income is under 25% of your debt, you could be eligible for a Chapter 7.
Not passing the means test just shows that you are not eligible for a Chapter 7 bankruptcy. You can still find relief in filing for a Chapter 13 bankruptcy in Georgia. Chapter 13 may even be a viable option for those who do pass the means test. This involves putting your debts on a payment plan for between three and five years. This is often preferred because asset liquidation does not need to take place. You can find relief from your overwhelming payments while not losing any property. Before you make any decision on the type of bankruptcy that you file for, discuss your options with a skilled bankruptcy attorney in Marietta. Contact Blevins & Hong, P.C. today to see how we can help you through the means test and also through the bankruptcy process.