An unexpected job loss can take a tremendous toll on your finances. If you have been struggling to keep up with your expenses for several months, bankruptcy might provide you the fresh start you need. Although you don’t have to be employed to file for bankruptcy, you will also need to consider the likelihood of incurring more debt while on employment. A debtor does not want to file bankruptcy only to find themselves back in debt in a few months.
CHAPTER 7 BANKRUPTCY, MEDIAN INCOME and the MEANS TEST
If you are unemployed, you will likely have an easier time qualifying for a Chapter 7 bankruptcy. This type of bankruptcy eliminates, or discharges, a majority of an individual’s debts. Dischargeable debts include items like credit cards, collection accounts, lawsuits, medical bills, repossessions, pay day loans, personal loans and overdue utilities. Non-dischargeable debts include child support, most tax debt, and in the vast majority of situations, student loans.
To qualify for a Chapter 7 bankruptcy, a debtor must pass a “means test,” which compares the debtor’s gross household income to the “median” income mandated the county in which you reside for a similar-sized household. If you are below the median income level, you should qualify for Chapter 7 debt relief.
If you are above the median income amount, you may still qualify for Chapter 7 debt relief. To do so, a debtor must illustrate there is no disposable income in their budget. This is accomplished by completing the means test. To start, the means test takes a debtor’s gross monthly income. Deductions are then made for taxes, insurance, living expenses and a host of other IRS mandated allowances. After all the deductions are applied, the means test produces your disposable monthly income. If the number is low enough, you should qualify to file Chapter 7 bankruptcy.
CHAPTER 13 BANKRUPTCY and REPAYMENT
Similar to a Chapter 7 bankruptcy, a Chapter 13 bankruptcy will most likely discharge your credit cards, collection accounts, lawsuits, medical bills, repossessions, pay day loans, personal loans and overdue utilities. Chapter 13 bankruptcy can also be used to stop foreclosure proceedings on your property, stop garnishments, defer student loan payments or reorganize your tax debt. Depending on the complexity of your case and the district it is filed, a Chapter 13 bankruptcy can be filled with little to no up front fees. Chapter 13 sets the debtor up on a manageable monthly payment plan with the Trustee’s office. In this payment plan, a debtor will be required to pay back anywhere from 0% to 100% of his debt, depending on the household income and expenses.