When Congress passed the now-infamous Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) , there were a few primary goals that they aimed to accomplish:
- Force more Americans to file Chapter 13 “reorganization or payment plan” bankruptcy, where the consumer is obligated to pay part or all of the debt off from their disposable income over a three to five year period.
- Encourage more consumers to seek alternatives to bankruptcy like credit counseling, budgeting help, or debt negotiation.
- Disqualify debts that were suspected of fraudulent origins – some common examples are debts from recent credit card cash advances, luxury purchases, or anything else that may lead the bankruptcy court to determine that the debtor never had any intention of paying the debt back to begin with.
The “means test” would be categorized under number 1 – forcing more debtors into Chapter 13 bankruptcy payment plans. The reason why Congress felt this was necessary was because an overwhelming majority of bankruptcy filers were choosing Chapter 7 as their preferred method of debt elimination because in many cases it meant they could get clear their debt without having to pay their creditors a dime.
When You Have To Take It
When a person has decided that they will file bankruptcy, they must first determine whether their average monthly income exceeds the median income of the same-sized household in their state. If your average income over the past six months exceeds that of the average person in your state, you are required to pass the means test in order to still be eligible or qualify for Chapter 7 bankruptcy.
What It Entails
You must first calculate your monthly income and then subtract it from certain allowable IRS expenses. From this amount you subtract any priority debts like your home or vehicle until you arrive at your monthly disposable income. If you arrive at an amount that exceeds, $182.50 per month, you will be forced to file Chapter 13 bankruptcy. If the amount you arrive at is greater than $110 and could be used to pay back over 25% of your unsecured debt over five years, you will also not be able to qualify for Chapter 7 bankruptcy.
Bankruptcy Alternatives
Not sure you want to file either chapter bankruptcy? There may be an option that better suits your situation. To get a free consultation simply fill out a form and PayingPaul.Com can match you with a debt management provider for free advice. It’s really that easy!
You can lower your monthly payment, your total debt amount, and the time frame until you can become debt free. Some programs can have you out of debt in as little as 12 months without the headache of qualifying for bankruptcy or passing the means test.
Submit a form for more information today!