Grappling With Financial Independence-Chapter 7 Or The Means Test
Posted by Miranda Owen at September 25th, 2019
Chapter 7 bankruptcy ordinarily means the liquidation of an indebted person’s property as a tradeoff for the release of obligation. Undeniably, charge card, medicinal, and terrible vehicle obligations are consistently the main supporters of an indebted person going for liquidation, particularly Chapter 7.
For account holders confronting accelerated balances, filing a Chapter 7 liquidation to soothe them from decisions and an obligation-ridden future might be actually, what they have to get a new beginning.
When a Chapter 7 case is shut, the Debtor is free from most obligation and allowed to carry on with their life once more.
However, any new obligation brought about after the documenting of chapter 7 bankruptcy will not be released.
Defining A “Fresh Start”
Filing for Chapter 7 Bankruptcy allows the debtors an opportunity to get rid of unsecured debt behind them. Moreover, noticeable benefits of filing chapter 7 bankruptcy are stripping off the unsecured debts that include medical debt, personal loans, and credit cards. In addition to this, judgments remove from a debtor’s real property as well as lawsuits must cease.
Simply put, Chapter 7 permits your debtor client to move on from the creditor’s debt, and many other debts that too at reasonable and affordable legal cost.
Therefore, it is advisable to contact an experienced bankruptcy attorney while going for bankruptcy, so that he will evaluate all the options critically, and make the best financial decision for you.
Reaffirmation Of Agreements
One way to a “fresh start” comes in the form of a Reaffirmation Agreement. It is needed for the U.S. Bankruptcy Code for auto loans, in the event you wish to keep the auto. That states that if you wish to stay, you will have to pay. Therefore, if you have taken a car loan and you wish to file bankruptcy, then you have to reaffirm that car loan if you wish to keep that car.
Hence, when you reaffirm an auto, then that reaffirmed debt survives bankruptcy. Besides that, you will be obligated to make continuous payments toward it, even after the closure of bankruptcy.
Likewise, if you defaulted on that reaffirmed debt, then the auto creditor has the right to repossess the vehicle and sue you for the difference on the reaffirmed debt.
Therefore, while majority debtors tend to sign reaffirmations to keep their car, yet everyone needs to be aware of the benefits and consequences of doing so.
Applying The Means Test
The US Bankruptcy Code was revised in 2005. The new addition is known as the “Means Test” that too most misunderstood one. It is a 60-step mathematical process, in which debtors’ household incomes are compared to another household of the same wage level in the state.
However, those 60-steps are questions about your last six-months of income, your secured loans, and tiny other spending details. It includes mortgages or auto loans, ordinary calculations like those that either you pay for internet or a home alarm system.
Hence, it is an extremely complex process and it is advisable to a debtor to seek professional help.
Simply put, if the debtor’s household income surpasses the average household income, then they are forced into a repayment plan via a Chapter 13. On the contrary, if the debtor’s income is less than the average, then they qualify for Chapter 7.
The concept is spontaneous, if you can afford more than the average family, then you will be required to pay an installment of your debts.
However, another important point is that even if you fail the “Means Test” and given the only option of a Chapter 13 bankruptcy, then you are required to pay only to the extent that you can afford.