If you’re filing for bankruptcy, you probably have many questions. The language surrounding bankruptcy can seem confusing and complicated if it’s something you’ve never encountered before. What kind of bankruptcy should you file? What’s the difference between Chapter 7, 11, or 13, and which one is right for you? What is a means test, and what does it mean for you?
If you’re struggling to get out from under debt, a Chapter 7 bankruptcy may be the right option for you. With a Chapter 7, you don’t have to enter into a repayment plan, as you do in other forms of bankruptcy. You will have to liquidate any non-exempt assets to partially repay your debt, but it’s still the most affordable option if you don’t have the money for repayment.
In some instances, though, it may be determined that you actually do have money to repay debt. When that’s the case, you may be forced into a Chapter 13 bankruptcy, which requires you to enter into a repayment plan. How does the court decide whether or not you should be on a repayment plan? This is where the means test comes into play.
The means test looks at your income in comparison with the median income for people in your state. Let’s say you’re a single person living in Chicago. Referencing this chart, it would be determined that the median income for a single person household is $49,682 in Illinois. If your income is higher than that, the court may consider that you have the “means” to repay your debt, and thus disqualify you from Chapter 7 bankruptcy. If your income is beneath that number, you qualify for a Chapter 7 bankruptcy and can legally write off some- (or all)- of your debt.
Those are the basics, but as you might expect, it’s actually a little bit more complicated than that. For instance, when using the means test, your income is calculated using only the past six months of income. This means timing is important because if you made more money during one of the six months included in the calculation, it could skew your income higher than the median, and disqualify you. On the other hand, if your income is higher than the median but you have certain exempt expenses, that may reduce your disposable income, bringing you back into the correct range.
If this seems confusing, don’t worry. You can trust the compassionate, dedicated attorneys at Cutler & Associates to help you navigate the unfamiliar terrain of bankruptcy while keeping your best interests in mind. A Chicagoland bankruptcy firm, we have clients throughout the Chicago metropolitan area and work hard to make sure our clients get what they need. Our offices are conveniently scattered throughout the area, with locations in Aurora, Chicago, Hoffman Estates, Lisle, Naperville, Oak Brook, Schaumburg, and Skokie. Contact us through our website, or call (773) 360-5802 for more information.