New bankruptcy laws came into effect in October 2005. Since then the laws have changed a lot. In particular, if you are filing under chapter 7, you must be aware of the two major changes. Two things have become mandatory now - first, passing the means test and second, availing the credit counseling services. It is very important for you to understand that filing under different chapters is no more optional. There are certain eligibility criteria that have been set by the new laws. Depending upon the result of the means test and the suggestions of your credit counselor, the bankruptcy court will decide which chapter you should file your case under. The means test actually means the evaluation of the property, money, and other assets owned by you.

The Comparison Of Your Income With Your State's Median Income

The means test offered by the new bankruptcy laws is a two-part process. The first part deals with the evaluation of all the assets and properties while in the second part; your income is compared with your state's monthly median income. Your annual income is calculated by multiplying your monthly income by twelve. Now, if the amount is less than the median income in your state, you can qualify for filing under chapter 7 bankruptcy. On the other hand, if your annual income is greater than the median amount, you cannot apply under chapter 7. You will be asked to file your petition under chapter 13, as per which your income will be factored into a formula so that you can not only pay off your debts but also regain control of your finances.

The Formula For Means Test

Here, it is important for you to understand that the means test formula does not consider the entire amount of your monthly income. Only the amount that is left after deducting the living expenses like food and lodging is considered. If the court or the trustee finds that you cannot even pay one hundred dollar per month, straight bankruptcy may be granted to you. On the other hand, if it is found that you are able to pay at least ten thousand dollars within the period of five years; your case will be considered under chapter 13. If the amount that you are able to pay falls somewhere between six thousand and ten thousand, another mathematical calculation is used to determine the chapter you are eligible to file your case under. As per the new bankruptcy laws, if you are able to pay at least 25% of your entire unsecured debts you cannot file under chapter 7. Likewise, if you cannot pay even 25% of the unsecured debts, bankruptcy may be granted to you.