Qualifying For Bankruptcy
Contrary to what most people think, bankruptcy qualification isn’t just about owing a certain amount of money or having no means of paying off debts. Bankruptcy officials take into account your total debt, the types of debt you have, your income, your assets, and sometimes even your family situation. That’s why it helps to get advice from a bankruptcy attorney before starting a petition.
Means Testing
The primary method of bankruptcy qualification is the means test, which was introduced in 2005 as part of the bankruptcy rule overhaul. The means test is a measure of your income and thus your capacity to pay your debts. It is a way for the court to determine whether you qualify for Chapter 7 bankruptcy, wherein you sell off some of your assets to pay off whatever can be covered, or Chapter 13 bankruptcy, wherein you enter into a repayment plan with your creditors.
Median Income
The means test compares your income to the median income of your state. Basically, if your disposable income (what is left after mortgage, rent, and basic utilities are paid for) is less than the state median, you meet the Chapter 7 bankruptcy qualification, as the court assumes you have no means of getting back on track. If your income is higher, you can file for Chapter 13 bankruptcy and pay off as much of your debt as your income allows over a period of three to five years.
Credit Counseling
Once you’re past the qualifying stage, you can take the first step towards filing bankruptcy: attending credit counseling. Like the means test, this has been required since the new laws were passed in 2005. You can take the course by phone, online, or in person. The session costs around $50 and lasts about an hour and a half. A similar course called debtor education will be required at the end of the bankruptcy, just before you are discharged.
Bankruptcy Petition
The bankruptcy petition is your formal declaration of bankruptcy with the local court. It’s one of the first things you have to fill out after your bankruptcy qualification. The form lists basic information about your creditors, such as their names and addresses and how much you owe to each of them. It will also include your income, monthly expenses, assets and liabilities and other data needed for qualifying.