9/11/2012

If You Need to File Chapter 7 Bankruptcy, Don't Get Forced Into Chapter 13

There is a common thread that runs throughout the American culture today and that's the economy sucks. This recession has affected everyone. There has been no one that has been immune from losing something. The only jobs that have until now been stable are that of the public sector. Everyone thought that if they were a policeman or a fireman, their job would always be safe because they are needed. Until recently this was true, now cities are having trouble making payroll nationwide. As cities continue to cut their budgets, departments are having to lay off employees including police and firemen. This is putting our local heroes even in danger of filing bankruptcy and losing their homes to foreclosure.

Back in 2005, Congress changed the bankruptcy code because credit lobbyists pushed for stricter regulations on filing bankruptcy. They believed that too many Americans were abusing the legal system. What came out of this was the BAPCPA of 2005. Included in the changes was a means test to qualify people to file Chapter 7 bankruptcy. Prior to this, when people thought of filing bankruptcy they thought of Chapter 7. Now, many people are being forced into filing Chapter 13 bankruptcy instead of the Chapter 7 that was originally planned. Since the changes to the bankruptcy code many bankruptcy attorneys have argued the negative ramifications it has had on Americans in financial trouble. Forcing someone into a Chapter 13 payment plan many times only sets them up to fail, totally opposite of the fresh start that bankruptcy promises. Don't get me wrong, Chapter 13 has its benefits for some individuals depending on their situation. For most people, Chapter 7 bankruptcy is the best Chapter to file.

Just ask any bankruptcy attorney and they will tell you the trouble with some people qualifying to file Chapter 7. There is a large group of people that should be filing Chapter 7 and is forced into Chapter 13 bankruptcy because they do not qualify. The majority of these ride on top of the fence and could go either way. Their income is just too high for the area in which they reside and their expenses are too low. The problem is, the majority of their debt is from credit cards which are not allowed to be included in the expense report.

Let's take a step back and discuss how the means test works. Basically, the means test takes a look at the last six months of the individual's household income. How it works is, a person will add up their pay for the last six months, then divided by six and multiply by 12. This will give them their average annual income to be compared with the median income chart for their state. This in itself does not qualify someone to file Chapter 7 bankruptcy. They will need to complete an income and expense report that includes all of their household expenses like rent, transportation, medical, and all other living expenses. Anything that will be included in the bankruptcy discharge like credit cards cannot be included in this expense report because it will be wiped out in the bankruptcy filing. Some people can qualify if the numbers are moved around a little bit by a bankruptcy attorney. A Bankruptcy attorney will know what will be excepted by the bankruptcy court for acceptable expenses. Some people don't qualify even if they make under the median income because their expenses are not high enough and the court believes they're capable of paying back at least a portion of their debt. The bankruptcy court wants to make sure the person filing bankruptcy has less than $150 disposable income each month left after paying all their living expenses. If they have more disposable income left over they could be forced into Chapter 13 bankruptcy.

As the economy has continued to decline, so have the median incomes of every state, making it harder to qualify to file Chapter 7 bankruptcy. This is another good reason why someone should use the expertise of a bankruptcy attorney to file bankruptcy. Never say never if you think you make too much money to file Chapter 7, it still might be possible.



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