What Happens If You Fail the Bankruptcy Means Test?
The means test is an important preliminary step that anyone interested in a Chapter 7 bankruptcy will have to pass through. Chapter 7 bankruptcy is only going to be granted to individuals that have an income below the median income for the state.A�As of the end of 2015, the single person household income in Arizona is set at 45,933 dollars. The annual income for two-person households is 56,361 dollars, for three-person households a�� 60,392 and for four-person households a�� 71,195 dollars. If you fail the bankruptcy means test, it is impossible to qualify for Chapter 7 bankruptcy. If you are in such a situation, youa��ll have to consider the alternatives.
Understand Part Two of the Test
Many people are unaware of the fact that the means test in Arizona has two parts. The comparison of the household income to the state median is only the first part of the process.
People who fail the bankruptcy means test first part, can still go on to the second one. If they pass the second part of the test, such individuals will qualify for Chapter 7 bankruptcy.
In the second part of the test, household expenses are subtracted from the annual income. This way, the disposable income is calculated. Some of the monthly expenses that are permissible in the calculation include housing, transportation costs, car payments, mortgage payments, etc. This calculation is used to determine whether the debtor has enough disposable income to pay off a specified percentage of unsecured debt. If the income isna��t sufficient, the debtor will still be provided with a chance to file Chapter 7 bankruptcy.
For Arizona, the remaining disposable income that will qualify an individual for Chapter 7 bankruptcy is roughly 100 dollars per month. Whenever a person has disposable income in the 100 to 166 dollar range, officials will examine the amount of debt to determine whether Chapter 7 bankruptcy is still the best possible option.
The Best Option if You Fail the Bankruptcy Means Test
People who fail the means test can still go through with a Chapter 13 bankruptcy. Chapter 13 bankruptcies are quite different from the Chapter 7 option but they can still be beneficial for individuals who have accumulated a lot of debt.
Chapter 13 bankruptcies come with repayment plans. A debtor will have to pay off a portion of their debt in the coming three to five years. After the end of this period, ita��s possible for the remaining amount to be discharged.
Chapter 13 bankruptcies are available to both individuals who pass the means test and those who fail it. While debt isna��t going to be discharged in its entirety, Chapter 13 bankruptcies come with a range of important benefits:
- Creditors have to discontinue debt collection efforts
- The debt payments will be budgeted and calculated carefully to address the debtora��s current financial situation
- Foreclosures are stopped
- Repossessions are stopped
- Certain assets will be protected
- Interest on unsecured debt stops
Usually, the monthly debt payments will be reduced from the amount that had to be paid before the bankruptcy. The payments are tailored to the available disposable income, which is a great benefit for people who are struggling to repay their debt.
See an Attorney Right Now
If you dona��t pass the means test or youa��re interested in Chapter 7 bankruptcy, you will need to see an experienced Arizona bankruptcy attorney immediately. A lawyer will do the necessary calculations and let you know which options are best.
In some situations, filing bankruptcy may not be necessary. Ita��s possible to accomplish debt settlement through the help of a lawyer. Debt settlement is a process in which the attorney will negotiate a cash settlement for your debt. Such options are good for people who have some savings and who dona��t qualify for Chapter 7 bankruptcy.