Chapter 7 bankruptcy is an option for those struggling to make ends meet. In theory, those who qualify for a Chapter 7 filing can relatively quickly move through the bankruptcy process and discharge their qualifying unsecured debts. Although the process does sometimes require asset liquidation, the vast majority of people who qualify to file will also be able to exempt their resources from liquidation.
Chapter 7 bankruptcy gives someone an automatic stay the day they file and may lead to a discharge of certain unsecured debts after the successful filing. However, not everyone is eligible for Chapter 7 bankruptcy. Only those who pass a means test have the option of filing for a Chapter 7 bankruptcy as opposed to a Chapter 13 bankruptcy.
What does the means testing process in Indiana involve?
Someone has to review their income to qualify
The means testing process primarily focuses on the comparison of an individual’s finances with the average or median income in the state. The Department of Justice regularly reports the current median income for different household sizes in every state. Those hoping to pursue a Chapter 7 bankruptcy will need to compare their current household income with the median income reported for a household of the same size.
The prospective filer will typically take the last six months of income and convert that to an annual income amount before making certain adjustments for specific exempt expenses. That final adjusted figure is what they will compare with the current reported median income for their household size in their state.
Means testing can prove difficult for many people
The process of adjusting household income is a challenge that many people let deter them from a bankruptcy discharge. Yes, it can be a bit difficult to go over household finances to determine whether someone is eligible for a Chapter 7 bankruptcy. Still, failing to do so might mean that someone ends up trapped in a lengthy repayment plan that they could have avoided.
Talking about someone’s circumstances with a professional can help them better explore whether Chapter 7 bankruptcy is the appropriate solution for their current debt issues.