There’s been a lot made about the means testing requirement when filing for bankruptcy. When the federal government changed the bankruptcy laws in 2005, many people rushed to file Bankruptcy before the law was an acted out of fear that the means testing requirement would make it more difficult to file. But it has been 12 years since that time, and bankruptcy attorneys have not noticed a change in the way they handle bankruptcy cases. There is more paperwork to prepare, and more boxes to check, but the main thrust is still the same—people who cannot afford to pay their creditors can still find relief through the Bankruptcy process.
But the way Bankruptcy attorneys prepare Chapter 7 and chapter 13 bankruptcy petitions is different from a technical standpoint. Here is an analysis of the difference from chapter 7’s now as opposed to pre-2005. An analysis about the differences between Chapter 13 Bankruptcy now and before 2005 follows below.
How Chapter 7 Bankruptcy Was Affected
When you’re attempting to file a Chapter 7 bankruptcy, the means test basically acts as a gatekeeper; meaning, it tells you whether you qualify for a Chapter 7 bankruptcy or not. The only problem is that the means test is not conclusive. People who pass the means test don’t always necessarily qualify for Chapter 7, and people who failed the means test are sometimes able to successfully qualify for Chapter 7 anyway.
For example, if you pass the means test because your income was very low in the past six months, but the week before you file chapter 7 bankruptcy you get a new job that pays you well over the median level of income, then you will not qualify for Chapter 7 despite the means test telling you otherwise. Because there are other tests you must pass to truly be eligible for chapter 7.
And in the opposite situation, if the means test holds that you that you do not qualify for Chapter 7 because your income was well over the median level in the past six months, but you lost your job the week before you filed bankruptcy, then you will almost definitely qualify to file Chapter 7 bankruptcy despite the means test telling you otherwise.
How Chapter 13 Bankruptcy Was Affected
And when it comes to chapter 13, it becomes even more nuanced. The means test usually tells you what your minimum payment needs to be. But because the means test is a backward looking document, it is necessarily flawed.
For example, if you have received a pay raise in the days before filing bankruptcy, and you can actually afford to pay more money to your creditors than what the means test yields. Whereas if you have received a pay decrease in the days before filing chapter 13 bankruptcy, then the means test requires you to pay a larger amount and you can actually afford.
Now a competent attorney and find a legal way around this dilemma. But the main problem is that different bankruptcy judges interpret this situation differently. And in most bankruptcy courts, there are more than one judge. So, attorneys usually are not able to confidently tell their clients in advance of filing the case what their chapter 13 plan payment will be since those attorneys cannot guarantee that a certain judge will be drawn on that particular Chapter 13 Bankruptcy filing. It is a random process.
What all this means is that it is important to hire a local, competent attorney that is familiar with bankruptcy law before you file bankruptcy. It is definitely worth the investment. To receive a free, same day, over the phone consultation with one of our attorneys, call us at 888-FAIRMAX.
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This article is not meant as legal advice, and Bankruptcy is very complicated depending on every persons overall financial situation. So, if you are considering any chapter of the bankruptcy code, is it called one of our attorneys for a free, same day consultation. To learn more about Chapter 7 or Chapter 13 Bankruptcy, the federal government has excellent information about it on their website at http://www.uscourts.gov/services-forms/bankruptcy Fairmax Law™ is a Service of Jaafar Law Group PLLC and is a designated debt relief agency that helps clients file bankruptcy under the federal bankruptcy code.
This article is not meant as legal advice, and chapter 13 is very complicated depending on every person’s overall financial situation. So, if you are considering any chapter of the bankruptcy code, is it called one of our attorneys for a free, same day consultation.
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