How Do I Know If I Qualify For Chapter 7 Bankruptcy?

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How Do I Know If I Qualify For Chapter 7 Bankruptcy?

What are the qualifications to file bankruptcy? This seems to be a major concern for many people. The truth is that if you are having trouble paying your bills, you probably qualify to file for bankruptcy protection under the bankruptcy act. Businesses can file either a Chapter 11 or Chapter 7 bankruptcy and consumers can file either of those two or under Chapter 12 or 13. Chapter 11 is certainly used by businesses to reorganize their debts. But it too can be used by individuals, predominantly when they don’t meet the criteria for Chapter 13. Anyone, business or not can file for Chapter 7 protection. The only limitation is that a consumer can file only if their income does not greatly exceed their expenses. Incomes vary from state to state under the bankruptcy code.  If there is excess income, generally a consumer can file a Chapter 13 bankruptcy.

Don’t worry about the humiliation often associated with filing for bankruptcy, that’s the purpose of getting a fresh start is to stop the self blame and helplessness and give yourself a second chance. Most people contemplating filing bankruptcy are at the end of their rope and there is little else they can do to right their economic ship. But filing for bankruptcy isn’t the end of the world, it’s a new beginning, and in this era of the current financial crisis, rising unemployment and increasing house values, it may be the best thing to do. The bottom line is that if filing personal bankruptcy will get you a fresh start and help you reestablish a healthy credit score sooner rather than later you should seriously consider it. If conservative financial consultants are encouraging filing bankruptcy it’s obviously time to recognize that it has become the most acceptable and reasonable way to deal with the personal financial crisis.

Prior to October, 2005, filing for bankruptcy did not require taking a means test. Instead of this artificial test, discretion was left to the bankruptcy judges to decide whether there was an abuse of the bankruptcy code. Typically, such an abuse would be found if the debtor filed bankruptcy and clearly had the ability to pay back a substantial portion of his claims within a 3 to 5 year period. When Congress passed the means test, it was intended to take much of the discretion away from the bankruptcy judges with a bright line formula called the means test. This test compares artificial income, from the previous six months, with artificial expenses from the IRS tax table. A debtor either passed or failed, and the system is easily manipulated by simply timing the receipt of income in the previous six months or playing with certain expenses and family sizes. Nevertheless, there were previously two primary exceptions to the means test, Social Security and non consumer debt.

It used to be that there were two main exceptions to having to pass the means test when filing for bankruptcy under the new bankruptcy laws enacted in October 2005. Recently, a third exception was added. Means testing does not consider Social Security as income. Accordingly, someone with a $1200 per month Social Security income will pass the means test even if expenses are only $600 and $600 is left over to pay creditors on the means test area. Next, if the debtor has primarily non-consumer debt, then means testing does not apply. Accordingly, someone making $100,000 per month with primarily business debt, still qualifies for Chapter 7 bankruptcy protection and discharge. Last of all, if you are a National Guard member or Armed Forces reserve, then you will be temporarily excluded from the means test for the entire time you are on active duty in 540 days thereafter, provided you serve at least 90 days. If your duty is less than 90 days you do not qualify. If you are simply active military duty you do not qualify. These are the basic qualifications required under the new bankruptcy code. If you are in a situation where you are considering filing chapter 7 you should consult either a reputable bankruptcy attorney or a reputable online bankruptcy service.

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