A significant change in the U.S. Bankruptcy Code in 2005 now requires a "means test" for people in Modesto who want to file for Chapter 7 bankruptcy. The means test is outlined in section 707(b)(2) of the Bankruptcy Code. It is designed to determine whether or not filings are valid (based on income) or if they will be dismissed or converted to another type of bankruptcy, such as Chapter 13.
The means test is based on your aggregate monthly income over the last five years, less certain deductions. It also takes into account the amount of disposable income you have versus the amount you owe in unsecured debt. If your disposable income is less than 25% of your debts over the past five years, you will likely qualify for Chapter 7 bankruptcy. Similarly, if your projected monthly disposable income is less than $100/month, you will likely pass the means test.
If approved by a judge, Chapter 7 bankruptcy erases debt entirely after certain nonexempt assets are sold by an appointed trustee to pay your debts. If your income allows you to make minimum monthly payments over three to five years, you may instead qualify for Chapter 13 bankruptcy. This type of bankruptcy allows for debt to be negotiated down and paid via an extended payment plan.
Although the Department of Justice cites that about 5% of Chapter 7 filers are converted over to Chapter 13 based on an ability to make payments on debt, the means test does totally disqualify as many as 20% of filers annually because they simply make too much money or because they've filed the paperwork incorrectly. The bankruptcy laws in the United States are detailed and extensive. That's why it's crucial to have a trusted bankruptcy lawyer on your side. A lawyer will take care of the paperwork for you and guide you on a path to financial recovery.
