Law Firm - The New Bankruptcy Law "Means Test" Explained in Plain English
Good morning. Today, I learned about Law Firm - The New Bankruptcy Law "Means Test" Explained in Plain English. Which is very helpful for me and you. The New Bankruptcy Law "Means Test" Explained in Plain EnglishWith the new bankruptcy law in supervene since October 17, 2005, there is a lot of confusion with regard to the new "means test" requirement. The means test is used by the courts to decide eligibility for chapter 7 or chapter 13 bankruptcy. The purpose of this report is to expound in plain language how the means test works, so that consumers can get a better idea of how they will be affected under the new rules.
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When most citizen think of bankruptcy, they think in terms of chapter 7, where unsecured debts are usually discharged in full. Bankruptcy of any range is a difficult ordeal at best, but at least with chapter 7, a debtor was able to wipe out their debts in full and get a fresh start. chapter 13, however, is an additional one story, since the debtor must pay back a indispensable measure of the debt over a 3-5 year period, with 5 years being the thorough under the new law.
Prior to the arrival of the "Bankruptcy Abuse prevention and buyer safety Act of 2005," the most tasteless reckon for person to file under chapter 13 was to avoid the loss of equity in their home or other property. And while equity safety will continue to be a big reckon for citizen to pick chapter 13 over chapter 7, the new rules will force many citizen to file under chapter 13 even if they have No equity. That's because the means test will take into list the debtor's earnings level.
To apply the means test, courts look at the debtor's average earnings for the 6 months prior to filing and assess it to the average earnings for that state. For example, the average yearly earnings for a singular wage-earner in California is ,012. If the earnings is below the median, then chapter 7 remains open as an option. If the earnings exceeds the median, the remaining parts of the means test comes into play.
This is where it gets a miniature bit trickier. The next step in the calculation takes income, less living expenses (excluding payments on the debts included in the bankruptcy), and multiplies that outline times 60. This represents the estimate of earnings ready over a 5-year period for reimbursement of the debt obligations.
If the earnings ready for debt reimbursement over that 5-year period is ,000 or more, then chapter 13 will be required. In other words, whatever earning above the state median, and with at least 6.67 per month of ready income, will automatically be denied chapter 7. So for example, if the court determines that you have 0 per month earnings above living expenses, 0 times 60 is ,000. Since ,000 is above ,000, you're stuck with chapter 13.
What happens if you are above the average earnings but do Not have at least 6.67 per month to pay toward your debts? Then the final part of the means test is applied. If the ready earnings is less than 0 per month, then chapter 7 again becomes an option. If the ready earnings is between 0 and 6.66, then it is measured against the debt as a percentage, with 25% being the benchmark.
In other words, let's say your earnings is above the median, your debt is ,000, and you only have 5 of ready monthly income. We take 5 times 60 months (5 years), which equals ,500 total. Since ,500 is less than 25% of your ,000 debt, chapter 7 is still a inherent option for you. If your debt was only ,000, then your ,500 of ready earnings would exceed 25% of your debt and you would be required to file under chapter 13.
To sum up, first outline out either you are above or below the average earnings for your state - average earnings figures are ready at http://www.new-bankruptcy-law-info.com. Be sure to list for your spouse's earnings if you are a two-income family. Next, deduct your average monthly living expenses from your monthly earnings and multiply by 60. If the supervene is above ,000, you're stuck with chapter 13. If the supervene is below ,000, you may still be able to file chapter 7. If the supervene is between ,000 and ,000, assess it to 25% of your debt. Above 25%, you're seeing at chapter 13 for sure.
Now, in these examples, I have ignored a very important aspect of the new bankruptcy law. As stated above, the estimate of monthly earnings ready toward debt reimbursement is determined by subtracting living expenses from income. However, the figures used by the court for living expenses are Not your actual documented living expenses, but rather the schedules used by the Irs in the range of taxes.
A big problem here for most consumers is that their household budgets will not reflect the harsh reality of the Irs stylish numbers. So even if you think you are "safe," and are able to file chapter 7 because you don't have 0 per month to spare, the court may rule otherwise and still force you into chapter 13. Some of your actual expenses may be disallowed.
What remains to be seen is how the courts will handle cases where the cost of mortgages or home rentals are inflated well above the government schedules. Will debtors be anticipated to move into cheaper housing to meet the court's required program for living expenses? No one has any answers to these questions yet. It will be up to the courts to expound the new law in practice as cases head somewhere through the system.
I hope you receive new knowledge about Law Firm. Where you may put to use within your day-to-day life. And most significantly, your reaction is passed about Law Firm.
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