Decide On Chapter 7 Bankruptcy or Chapter 13 When You File For Bankruptcy
Since the passing of the new 2005 bankruptcy code, Chapter 13 cases are now being filed at the lowest rate since the Bankruptcy code was amended. Why is this happening? First of all you need disposable income for a Chapter 13 plan and yet more people are out of work. Next, you would want equity in property in order to file a Chapter 13 case, but most people are unwilling to spend five years to bring a mortgage current in their houses worth much less than their mortgage. Another reason is, people have the right to discharge their debts in Chapter 7 bankruptcy, they would rather not pay for five years under a plan that they can avoid it.
When determining when to file for bankruptcy, an issue to consider is whether a delay in filing can place the debtor within the current monthly income guidelines for his state. Under the changes to the bankruptcy code that resulted from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a debtor who wants to file for Chapter 7 bankruptcy must show that they do not have earnings that require them to be in a Chapter 13 bankruptcy. The process of determining the debtor’s income for bankruptcy purposes is known as the means test. The means test uses the income of the debtor for six months leading up to the filing of the bankruptcy. This month period is referred to as the debtor’s current monthly income. If you qualify under the means test you are eligble for Chapter 7 protection.
