Van Nuys Means Test Lawyer
If you are struggling with a significant amount of debt you cannot afford to repay, Chapter 7 bankruptcy may be a good option. If you file bankruptcy and are successful with your case, you can eliminate your unsecured debt, which means you are no longer responsible for paying it. However, the bankruptcy laws in the country are complex and not all borrowers qualify for Chapter 7. Below, our Van Nuys means test lawyer explains more about the test.
What is the Means Test in Chapter 7?
The means test was introduced by federal lawmakers in 2005. The purpose of the test is to prevent bankruptcy fraud by determining that a borrower does not have the means to repay their debt. Essentially, it is meant to prevent people from filing bankruptcy when they can afford to repay their debt. The majority of individuals filing Chapter 7 must pass the means test, but there are exceptions. For example, if a borrower’s debt was the result of operating a business, they are not subject to the means test.
How Does the Means Test Work?
If your income is lower than the average income in California, which varies by year and household size, you are automatically eligible to file Chapter 7. If your disposable income is higher than the state’s average, it may be more challenging to qualify for Chapter 7. Still, having a higher income also does not automatically disqualify you from filing Chapter 7.
The means test considers your average gross income for the last six months, deducting your necessary and reasonable living expenses. These expenses are then compared with the IRS local standards.
Taking the means test requires calculating your total disposable income for the next five years. If you will earn more than $7,700, you will then have to list your total dischargeable unsecured debt. Then, you must determine if your total disposable income can pay 25 percent of the debt you owe. If it is, there is then a ‘presumption of abuse,’ which may disqualify you from filing Chapter 7.
Options if You Do Not Pass the Means Test
There are certain exemptions, such as Social Security payments, that are not calculated as part of your disposable income. As such, even if you do not think you will qualify under the means test, you may.
Even if you do not have exempted income or qualify for other exceptions, you are not out of options. While you may not be able to file Chapter 7 bankruptcy, you may still be able to file Chapter 13. You do not have to pass a means test when filing Chapter 13 bankruptcy, but you will have to repay at least a portion of your debt within three to five years.
Our Means Test Lawyer in Van Nuys Can Advise You of Your Legal Options
If you think bankruptcy is an option for you, our Van Nuys means test lawyer at Wadhwani & Shanfeld can advise on your case. We can determine if you qualify for Chapter 7 and handle every detail of your case while providing the legal advice you need along the way. Call us now at 818-658-2669 or contact us online to schedule a consultation and to learn more.
