If you are currently thinking that bankruptcy may be the only solution to your money problems and are investigating the process, then you have probably come across the term 'means testing'. Bankruptcy can look pretty complicated to the uninitiated, but in actual fact the main thing you need to understand is that there are two main forms of bankruptcy – chapter 7 and chapter 13.
Chapter 7 is the one most people traditionally think of when they hear the term bankruptcy, where your debts are written off and your assets are liquidated. However, chapter 7 is only available to the people in the worst financial trouble, who could not afford to make the monthly payments that come with chapter 13. Means testing is the way in which people who apply for chapter 7 bankruptcy are assessed for eligibility.
How Does Means Testing Work?
Means testing works regionally, so you will be assessed in terms of your income and assets against other families or people in your area to determine if you are in a bad state of poverty.
Usually if you are someone who either has almost no money to spend on themselves after making monthly payments and meeting basic expenses, and the only assets you have are basics like furniture and clothes, you'll be likely to be able to file under chapter 7. This will all be dealt with by a bankruptcy attorney and the courts, and you will be informed whether or not you are eligible to complete the chapter 7 process.
If you fail the means testing, this means that you are theoretically making enough money to meet monthly payments under chapter 13, and will need to file for this instead.
Why Do They Have Means Testing for Bankruptcy Cases?
Bankruptcy costs creditors, insurers and various other entities a lot of money, and is not something to be considered lightly. For this reason, the most extreme form of bankruptcy, which is chapter 7, is only made available to the people who need it the most.
It is important that bankruptcy exists as an option for people who have fallen on hard times as it gives them a way out of what could otherwise become an unmanageable situation, however writing off debts in this way can't be an option for those who really can afford to make at least some payments.
This is why means testing is used to ensure that those who are granted chapter 7 bankruptcy really are the people with no means to pay off their debts.
Will I Lose My Assets?
In different jurisdictions there are certain items that the court can't take as part of bankruptcy.
Depending where you live, this could mean things like tools you need for work, things that belong to your children, or even in some places your car, but the lists vary wildly between states so you'll need to check up on where you stand in terms of assets you won't have to liquidize. If you own a house or have something else you really want to keep, then chapter 13 may be the best option for you, though people with valuable assets tend not to pass means testing for chapter 7 anyway.
Featured images:
No comments:
Post a Comment
I love feedback, Please speak your mind. Spam comments will not be Published or will be deleted immediately, thanks.