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Sunday, March 1, 2009

What you should know about the new Bankruptcy means test

By Josh Ramos

Many people find themselves in such severe financial circumstances that bankruptcy may be the only way out for them. However, because of the new bankruptcy law, many have made a false assumption that bankruptcy has been eliminated by the government.

There are definitely some changes that you need to be aware of, including the so called means test. This can help determine whether you can file chapter seven bankruptcy.

When it comes to bankruptcy, it seems like there's been an ongoing battle between creditors and debtors for a long time. In the U.S., for example, there have been a series of bankruptcy laws during our history which sometimes benefited the creditors and sometimes the consumer. Recently, a law was passed by Congress as a result of extensive lobbying by the credit card industry.

The good news is that bankruptcy is still available for those who need it, but the new law makes the process more tedious if you wish to have your debts eliminated under chapter seven. This brings us back to the means test.

The first thing you should know is how your income compares to other people's income in your own state. If your income is below the median income of your state, then you don't even have to worry about that means test. This makes sense, of course, because if you have a lower income you're less likely to be able to afford your debts.

If you have a higher salary, though, you will have to go through a more painstaking process to carefully document all of your income and expenses. From this, the bankruptcy court will determine whether you have the means to pay for your debts and if you qualify for chapter seven bankruptcy.

If the court thinks that you make plenty of money and don't need a chapter 7 bankruptcy, you may be forced to file for chapter 13 instead. Chapter 13 bankruptcy, by the way, gives you a payment plan instead of simply wiping out your debt.

The good news is that many people will still qualify for bankruptcy, even though the process itself has become more complex. You simply need to have good legal advice to guide you through the difficult maze.

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