If you are buried under mountains of debt and you have creditors calling and harassing you every night, then you probably need to consider filing for bankruptcy. There are a few things to consider before you file bankruptcy. First and foremost you must decide which type of personal bankruptcy to file. This is the time to consult with a bankruptcy attorney to discuss your financial situation and determine your best option.
For many people a Chapter 7 bankruptcy, also known as straight bankruptcy, is their solution. If an individual has large amounts of unsecured debt such as credit cards, payday loans, and medical bills, then a Chapter 7 may be right for them. Also, if they don’t own much property other than the basics and at the end of the month don’t have much money left over after paying their basic living expenses, then a Chapter 7 could be their ticket to becoming debt free.
First, however, the debtor must take a means test to see if they qualify to file Chapter 7 bankruptcy. The means test is for debtors with primarily consumer debt, and is meant to provide a standard for income based on median income for the state they reside in. Debtors with mostly business related debts are not subject to taking the means test. The means test begins by calculating the debtor’s gross income for a six month look back period prior to the bankruptcy filing and ending on the last day of the month before the filing. That amount is multiplied by two and then compared to the median income for a family of the same size and in the same state that the debtor resides in. If the debtor earns the same or less than the median income for their state than they will usually qualify to file Chapter 7 bankruptcy. In some cases a debtor may earn a little more than the median income for their state and still qualify, however, this is always an issue that needs to be discussed with their bankruptcy attorney.
The bottom line is, bankruptcy may not be something that everyone wants to do, but there are times when a person’s debt becomes so overwhelming that bankruptcy is their only way out. When it is all said and done, emerging from bankruptcy with a new lease on life and possibly even completely debt free is worth it.