Many clients have delayed coming in for a consultation because they fear they won’t qualify for a bankruptcy. Most of the time, they have this fear because of misinformation they have received from friends or family or even from creditors. The bottom line is that everyone qualifies for some type of bankruptcy protection.
Since the bankruptcy laws changed in October 2005, something called the means test has been instituted. Many people incorrectly think that this test was instituted to prevent people from being able to file a bankruptcy. That is not the case.
The means test is used primarily to determine if a prospective debtor is eligible for a Chapter 7 or if they would have to file a Chapter 13. Basically, the means test takes a historic look at your income based on the preceding 6 months to determine a monthly average, which monthly average is then multiplied by 12 to get what the Bankruptcy Code terms your “current income”. This figure is then used to determine if you are above or below the median income in your State for a household of your size. If you are below the State median income, then you would qualify for a Chapter 7 bankruptcy.
If the means test reveals that you are above the State median income, then we have to proceed with the second prong of the test, which is to take the monthly income average and then deduct from that average the allowable expenses, as set forth in the Bankruptcy Code. At the end of the calculation, if there is a postive number, indicating disposable income, then chances are you would have to file a Chapter 13 case and make a monthly payment to the Trustee in an amount approximately equal to the disposable income indicated by the means test. This does not mean that you have to pay back all of your debt! It means that you have to pay back what you can afford, based on the means test, on a monthly basis for 60 months. You would then receive a discharge from any unpaid balances owed on your dischargeable debts upon completion of your chapter 13 plan.
Another common misconception that many people have is that if you own a home you don’t qualify for bankruptcy, which is of course not true . Or they fear that if they do file a bankruptcy they will automatically have to give up or sell their homes. Also, not even close to the truth.
The fact of the matter is that a majority of people that file for bankruptcy protection are homeowners. In fact, many of those people are filing a bankruptcy specifically to save their homes. An experienced bankruptcy attorney would never put their client in a position to lose your home, if it was the client’s intention to keep their home. A chapter 13 bankruptcy is what’s called a reorganization. A chapter 13 debtor is what’s termed in the Bankruptcy Code as a Debtor in Possession. These means that as a chapter 13 debtor you retain possession of all of your assets. You don’t have to sell anything nor can anyone force you to sell anything.
The attorneys at Capone & Keefe can help you by explaining all of your options, so call us at 1-888-540-4795 and start to put your mind at ease and your finances back on the right path.