Chapter 7 bankruptcy is generally the fastest route to a discharge for individuals and married couples. While Chapter 13 bankruptcy requires between three and five years of structured payments before the courts may grant the discharge of any remaining eligible debts, there is no repayment plan in a Chapter 7 bankruptcy.
Qualifying filers are often able to secure a discharge within months of their initial submission of paperwork to the courts. To prevent abuses of the Chapter 7 bankruptcy process, the law imposes strict limitations on eligibility based on income.
How can individuals and couples filing jointly prove that their circumstances qualify them for a Chapter 7 bankruptcy?
They must pass a means test
Those aspiring to file Chapter 7 bankruptcy must calculate their adjusted income to determine if they are eligible. The means testing process involves calculating annual income based on the last six months.
Filers can adjust their gross income by deducting certain permissible expenses from their total household income. Necessary living expenses, such as housing, utilities and transportation, are among the costs that reduce the filer’s income.
They then compare the adjusted figure to the current Department of Justice median income figure for their state, based on the size of their household. Individuals who successfully complete means testing can then begin exploring exemptions to protect their resources from liquidation during the bankruptcy process.
Partnering with an attorney can be helpful during means testing and throughout a Chapter 7 bankruptcy case. Individuals who understand the law and the financial limitations of Chapter 7 bankruptcy are in the best possible position to reduce their financial obligations and preserve their resources.