Chapter 7 bankruptcy and the means test

Chapter 7 bankruptcy and the means test

by | Nov 23, 2016 | chapter 7 |

Many Pennsylvanians face financial hardship at one time or another. Sometimes these individuals are able to struggle their way out of it without taking any sort of legal action, but other times the debt is so overwhelming that the only way an individual can survive is if he or she finds debt relief. There are many legal debt relief options available to those facing burdensome debt, but understanding each and choosing the one that is right takes a little bit of research.

Chapter 7 bankruptcy, for example, is often referred to as liquidation bankruptcy. Under this form of bankruptcy, the bankruptcy trustee sells off some of the debtor’s assets and uses that money to pay back creditors. Any remaining debt may be forgiven. However, in order to qualify for this type of bankruptcy, an individual must meet certain federal requirements.

One of the tools the government uses to determine if one qualifies for Chapter 7 bankruptcy is the means test. This test is utilized when a debtor’s current monthly income is higher than the median income in the state where the debtor lives. In these instances, there is a rebuttable presumption that a bankruptcy petition is abusive and should be denied. This typically occurs when one’s monthly income is higher than $12,475 or more than 25 percent of unsecured nonpriority debt. This presumption is rebuttable, however, by a showing that special circumstances exist, such as additional expenses or changes to monthly income. If the presumption is not rebutted, then the Chapter 7 petition will be converted to a Chapter 13 bankruptcy filing.

Many individuals are uncomfortable with the idea of bankruptcy. However, bankruptcy can provide real relief and give an individual or business the fresh financial start it needs. There is life after bankruptcy, and for many, filing for bankruptcy is the best financial move they can make.

Source: U.S. Courts, “Chapter 7 – Bankruptcy Basics,” accessed on Nov. 20, 2016


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