Do I Qualify for Bankruptcy?
There has been a lot of mis-information spread by the financial industry about Bankruptcy, especially around the effect of the "Bankruptcy Reform" law of 2005. Many people think that you can't file a Bankruptcy case or that you won't qualify, even though you struggle with a mountain of debt.
The Truth is That if You Qualified to File a Bankruptcy Case Before "Bankruptcy Reform", You Will Almost Certainly Qualify to File a Bankruptcy Case Now!!
The general standard to qualify to file a Bankruptcy Case is that you are insolvent, meaning that:
- The value of your debts exceeds the value of your property; or
- You can't pay your debts as they come due.
I don't think that I have ever had a person come to consult with me about a Bankruptcy Case that did not fall into one of these categories.
The Means Test
The centerpiece of thhe Bankruptcy Reform Law of 2005 was the "Means Test". Congress wanted to force people who had the ability to pay some of their debts into Chapter 13 cases, where they would pay a portion of the debts over time, and not allow them to file Chapter 7 cases, where they might get their debts discharged without paying anything or giving up any property. So, it created the "Means Test".
The Means Test states that if you earn more than the amount of the median income for families of your family size you must pass a budget test to show that ypou are still needy enough to file a Chapter 7 case. If you earn more than the Median Income and cannot pass the "Means Test" you are forced to file a Chapter 13 case and are also required to have a 5 year Chapter 13 Plan.
As of April, 2010, the Median Income figures for Massachusetts are as follows (the figures are adjusted periodically, and the exact Median Income figure will depend on when your case is filed):
- $53,315.00 for single persons;
- $69,204.00 per year for a two person household;
- $82,297.00 per year for a three person household;
- $99,293.00 per year for a four person household; and
- $7,500.00 extra per year for each household member over four.
What this means is that if your household has an annual income of less than these amounts you do not even have to take the Means Test. Chances are that you don't have to worry about the Means Test. According to the U.S. Trustee's Office, 88% of the Chapter 7 cases filed in Fiscal Year 2009 did not have to take the Means Test, and only 10% of those that did have to take the Means Test did not pass it. This means that a little over 1% of the people who filed Chapter 7 cases had a problem qualifying to file the Chapter 7 Bankruptcy.
The Bottom Line: if you are struggling to pay your bills you will probably qualify to file a Bankruptcy case.
Want to find out more? Sign up for a no obligation financial interview and I will tell you if I think that you qualify or if you have other options that may work better for you.
