Owing money that you can’t pay is serious. Once you have admitted to yourself that your debts are out of control and you are tired of creditors blowing up your phone and email inbox (not to mention the threatening letters from creditors), you have taken the first steps toward regaining your financial footing.
Filing for Chapter 7 bankruptcy may be just the opportunity you need to start over with a clean financial slate. However, you should be aware that not every debtor will qualify. To see whether you qualify, you must pass a means test.
What that entails
Because Chapter 7 wipes out all eligible debts once the court approves the discharge of debts, there is no repayment as required in Chapter 13 bankruptcies. A means test is what determines the type of personal bankruptcy you qualify to file.
The means test compares your earnings with the median income of households of comparable sizes in your state, whether that is Tennessee or Arkansas. Those whose incomes fall below the median pass the means test and can proceed with filing a Chapter 7 bankruptcy.
Those whose incomes exceed the median amount can still file for bankruptcy, but in most cases will have to file under Chapter 13.
Bankruptcy laws are complex
If all this seems confusing, that is perfectly normal, as most people have little to no familiarity with the complicated world of bankruptcy law and its frequent changes. It is prudent to learn all you can about how the federal bankruptcy laws will affect your present — and your future.