Effective October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, aka the “new bankruptcy law” became effective. The law imposes certain restrictions, when it comes to filing for bankruptcy. One of the new requirements mandates that bankruptcy filers pass a “means test”.
The “means test” is a calculation that determines whether a bankruptcy filer has enough disposable income to file under chapter 7 or chapter 13. Chapter 7 allows bankruptcy filers to walk away from their debts after giving up most of their secured assets. If you are fail the “means test, ” chapter 13 may be an option. Chapter 13 requires filers to pay back their secured debt and as much of their unsecured debt as possible.
The “means test” will be triggered, if a filer’s monthly income is greater than their state of residence’s median household income after adjustments inflation and size of family. To determine if a bankruptcy filer passes the “means test” a filer’s attorney must do the following:
If what is left over is less than $100, then you pass the “means test”. If what’s left over is more than $166.66 then you fail the “means test” and are not eligible for chapter 7.
If what is left is between $100 and $166.66 then the attorney has to determine, if you can repay 25% of your unsecured debts (credit card bills, medical bills, student loans, etc) over 5 years. If you can repay the debts, then you fail the “means test”. If you cannot repay the debts, then chapter 7 is still an option for you.
For additional information refer to New Bankruptcy Law – A Summary of Changes You Should Know About
Visit http://www.poorcreditgenie.com for in-depth information about the new bankruptcy law and other bankruptcy articles.
The website offers free debt management credit counseling advice and information. Learn the secrets to getting a free government credit report and improving your FICO score.
The website is a consumer’s best friend for all things money.