The New Bankruptcy ?Means Test? Explained in Plain English
With the new bankruptcy law in effect as of October 17, 2005, there is a lot of confusion with regard to the new "means test" requirement. The means test will be used by the courts to determine eligibility for Chapter 7 or Chapter 13 bankruptcy. The purpose of this article is to explain in plain language how the means test works, so that consumers can get a better idea of how they will be affected under the new rules.
When most people think of bankruptcy, they think in terms of Chapter 7, where the unsecured debts are normally discharged in full. Bankruptcy of any variety is a difficult ordeal at best, but at least with Chapter 7, a debtor was able to wipe out their debts in full and get a fresh start. Chapter 13, however, is another story, since the debtor must pay back a significant portion of the debt over a 3-5 year period, with 5 years being the standard under the new law.
Prior to the advent of the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," the most common reason for someone to file under Chapter 13 was to avoid the loss of equity in their home or other property.
And while equity protection will continue to be a big reason for people to choose Chapter 13 over Chapter 7, the new rules will force many people to file under Chapter 13 even if they have NO equity. That's because the means test will take into account the debtor's income level.
To apply the means test, the courts will look at the debtor's average income for the 6 months prior to filing and compare it to the median income for that state. For example, the median annual income for a single wage-earner in California is $42,012. If the income is below the median, then Chapter 7 remains open as an option. If the income exceeds the median, the remaining parts of the means test will be applied.
This is where it gets a little bit trickier.
The next step in the calculation takes income less living expenses (excluding payments on the debts included in the bankruptcy), and multiplies that figure times 60. This represents the amount of income available over a 5-year period for repayment of the debt obligations.
If the income available for debt repayment over that 5-year period is $10,000 or more, then Chapter 13 will be required. In other words, anyone earning above the state median, and with at least $166.67 per month of available income, will automatically be denied Chapter 7. So for example, if the court determines that you have $200 per month income above living expenses, $200 times 60 is $12,000. Since $12,000 is above $10,000, you're stuck with Chapter 13.
What happens if you are above the median income but do NOT have at least $166.67 per month to pay toward your debts? Then the final part of the means test is applied.
If the available income is less than $100 per month, then Chapter 7 again becomes an option. If the available income is between $100 and $166.66, then it is measured against the debt as a percentage, with 25% being the benchmark.
In other words, let's say your income is above the median, your debt is $50,000, and you only have $125 of available monthly income. We take $125 times 60 months (5 years), which equals $7,500 total. Since $7,500 is less than 25% of your $50,000 debt, Chapter 7 is still a possible option for you. If your debt was only $25,000, then your $7,500 of available income would exceed 25% of your debt and you would be required to file under Chapter 13.
To sum up, first figure out whether you are above or below the median income for your state - median income figures are available at http://www.new-bankruptcy-law-info.com.
Be sure to account for your spouse's income if you are a two-income family. Next, deduct your average monthly living expenses from your monthly income and multiply by 60. If the result is above $10,000, you're stuck with Chapter 13. If the result is below $6,000, you may still be able to file Chapter 7. If the result is between $6,000 and $10,000, compare it to 25% of your debt.
Above 25%, you're looking at Chapter 13 for sure.
Now, in these examples, I have ignored a very important aspect of the new bankruptcy law. As stated above, the amount of monthly income available toward debt repayment is determined by subtracting living expenses from income. However, the figures used by the court for living expenses are NOT your actual documented living expenses, but rather the schedules used by the IRS in the collection of taxes. A big problem here for most consumers is that their household budgets will not reflect the harsh reality of the IRS approved numbers. So even if you think you are "safe," and will be able to file Chapter 7 because you don't have $100 per month to spare, the court may rule otherwise and still force you into Chapter 13.
Some of your actual expenses may be disallowed. What remains to be seen is how the courts will handle cases where the cost of mortgages or home rentals are inflated well above the government schedules. Will debtors be expected to move into cheaper housing to meet the court's required schedule for living expenses? No one has any answers to these questions yet. It will be up to the courts to interpret the new law in practice as cases proceed through the system.
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A majority of individuals burdened with multiple loans desperately seek a way out of their mounting debt problems. They seek expert services to combine their multiple loans into one. This is of great help to them because they no longer need to make payments against individual loans.
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Have a New Born in the Family? Here are Some Easy Ways to Save Money.
Copyright 2006 Debt Management Credit Counseling Corp.
Boca Raton, FL ? Everyone knows the cost of raising a child has dramatically increased throughout the years. With all the new styles of clothing, diapers and kinds of baby food, these items are more expensive than they once were. Here are a few simple ways to save.
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Have a New Born in the Family? Here are Some Easy Ways to Save Money.
Debt consolidation > Have a New Born in the Family? Here are Some Easy Ways to Save Money.
Debt Management gives the comfort of a debt free life
Everyone borrows money from the financial market at one or the other time to meet some urgent needs. But, at that time we don't realise that taking various debts from different lenders may become a burden one day. If you too are facing the same circumstances then debt management can prove to be the best solution to all your worries.
Debt management can be defined as an informal process of negotiations with the creditor to obtain a reduction in the interest rate levied or to reduce contractual repayment. The negotiation process involves giving proof to the creditors that the debtor has insufficient funds to meet all the debt obligations.
Debt management is a fair and growing service in the UK.
Debt problems usually occur due to circumstances which are beyond a person's control. Debt management not only helps in reducing a borrower's monthly payment but aims at eliminating all his debts. Borrowers get the benefit to consolidate their debts that are...
Debt Management gives the comfort of a debt free life
Debt consolidation > Debt Management gives the comfort of a debt free life
Affiliates: The Legal Way to Start Making Money The Extended Version
There are two ways of making quick and continuous (they keep paying you) money on the net. Refer something (affiliate) or make something from your ideas (e-books) What are Affiliates? Companies pays for telling others about their products, but only if someone buys something from them. Just check the bottom of any online store or dealer that you like and see if they have a referral or affiliate program. If you can't find a good affiliate program try http:/www.affiliatematch.com/
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Affiliates: The Legal Way to Start Making Money The Extended Version
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JK Harris Offers Customers New IRS Payment Option to Help Shed Debt
NORTH CHARLESTON, S.C. (ContentDesk) August 5, 2005 -- An IRS payment option implemented in January of this year may be able to help American taxpayers alleviate past due tax debt and allow the IRS to enter into agreements that result in full or partial payment of a tax liability, according to JK Harris & Company, LLC.Called the Partial Payment Installment Agreement, the PPIA is for taxpayers that have outstanding federal tax liabilities.
The new option became possible with the passage of the American Jobs Creation Act of 2004.
Prior to enactment of this legislation, taxpayers that could not fully pay their outstanding tax liabilities did not qualify for an Installment Agreement.
This left taxpayers unable to meet this criterion with limited payment options.JK Harris & Company, LLC, the nation's largest tax resolution company, is headquartered in North Charleston, S.C., and was founded in 1997 by current President and CEO John K.
Harris as a tax resolution...
JK Harris Offers Customers New IRS Payment Option to Help Shed Debt
Debt consolidation > JK Harris Offers Customers New IRS Payment Option to Help Shed Debt
What Are Low Interest Consolidation Loans
Taking financial assistance from the outsiders has now become the part and parcel of the lives of most of the people these days. There are cases where a few people find themselves in a situation where they have taken more than one loan from more than one creditor.
Serving to more than one creditor is never easy as you may have different terms with your creditors and keeping track of all the developments. It is also difficult to keep track of all the payments that are required to be made. What is more difficult is to be able to make payments to the creditors of the required amount and this can lead to trouble for the borrower if he is not able to make regular repayments.
A low interest consolidation loan is a technique which makes it a little bit easier for the borrower to tackle the problem of multiple borrowers.
Low rate consolidation loans allow the borrowers the option of taking another loan which would take care of all your previous debts. As...
What Are Low Interest Consolidation Loans
Debt consolidation > What Are Low Interest Consolidation Loans
Collection Agencies
In an era of increased lending and borrowing activities and business conducted on credit and good faith, recovery of debts is a major concern for most businesses. When companies fail to recover funds due to them, they seek the help of collection agencies. Tracking down defaulters and implementing a debt recovery solution can be a drain on time and finances, particularly for small businesses. A collection agency is an organization that obtains or arranges for payment of money owed to a person or company. They help establish a level of communication between the creditor and the debtor.
Businesses that are either too small to have a collection department of their own or lack the expertise to collect on past due
accounts themselves, engage the services of collection agencies. It also helps to protect a company's image to have a third party deal with these sensitive issues.
Collection agencies have the time and resources necessary to collect debts....
Debt consolidation > Collection Agencies
Secured Loans Information
A secured loan is a personal loan which is generally offered to home owners. In a typical secured loan, the home is used as collateral against the loan, meaning that should you be unable to maintain the loan repayments, your home will be at risk. A secured loan is a loan made with an asset, often your home, used as security against default on repayments. When you apply for a loan from a lender they look to see if you have any security that you can offer that will make the risk of lending you money less of an issue. Secured loans are where you agree to offer the lender security over your home.
This means that the lender has the right to take ownership of this asset if you fail to make the loan repayments that are due under your agreement. This security will generally be your home even if you still have a mortgage on the property. This security basically makes a lender feel better about your ability to repay your loan. You put your security up as a guarantee to the lender so that...
Secured Loans Information
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Debt consolidation
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