What You Need to Know Now About the Bankruptcy Means Test

There is a lot of misconception out there about what the new bankruptcy laws mean, and many people who are in trouble with their finances think that they can no longer declare bankruptcy. It's important to understand the new provisions, and one of the most important changes in the bankruptcy code has to do with something labeled the means test.

There seems to be an ongoing struggle between the credit industry and consumers when it comes to bankruptcy laws and other regulations. Recently, Congress passed the bankruptcy Reform Act as a result of pressure from the credit industry. This law was supposedly aimed at preventing abuse from consumers who declare bankruptcy even though they can afford to pay off their debts.

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To that end, the means test was created to determine whether a person should be allowed to declare bankruptcy based on income and expenses. If your income is lower than the median salary in your state, then you don't even have to worry about this test because you obviously have quite a low salary. This simply means that it is reasonable for you to need bankruptcy.

If your annual salary is higher, this doesn't mean that you can't successfully file Chapter 7 bankruptcy. However, you will have to take additional steps to prove your need for bankruptcy. This will include a detailed documentation of your income and expenses. For the relatively low percentage of applicants who fail the means test, the court will force them to choose Chapter 13 bankruptcy. This of course means that the consumer has to pay back the debt (or at least part of it) by making monthly payments throughout the next three to five years.

Many have complained about this new law, but the fact is we are stuck with it for now for better or worse. Feel free to contact your Congressman and complain if you wish, but for the time being simply discuss your options carefully with your attorney to see if bankruptcy is right for you. You'll also want to learn as much as possible from these kinds of articles and other resources.

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