What happens if I fail the means test?

13 Aug What happens if I fail the means test?

If you “fail” the means test but you file a Chapter 7 bankruptcy anyway, the United States Trustee will file a motion to dismiss your case or allow you to convert your case to a Chapter 13 bankruptcy.

A bankruptcy judge may allow you to stay in a Chapter 7 bankruptcy if you have extenuating circumstances that convince the judge your Chapter 7 filing is not “abusive.” If, for example, you “failed” the means test because you received a one-time disbursement of income, such as a personal injury settlement or severance pay, a judge would probably determine that the Chapter 7 bankruptcy is not abusive.

If you do not have extenuating circumstances, and according to the results of the means test, you have disposable monthly income of at least $167, the only bankruptcy you can file is a Chapter 13. When it comes to discharging or “wiping out” unsecured debt, Chapter 7 is usually preferred, but Chapter 13 is still a good option. Under Chapter 13, your attorney would prepare a written plan that will require you to pay only that amount of unsecured debt you can afford to pay. Any remaining balance owed to unsecured creditors would be discharged at the conclusion of the plan.

For example, let us assume that you owe $50,000 in credit card debts and medical bills. Let’s also assume that, according to the means test, you have $300 left over every month. If you file a Chapter 13 bankruptcy, you would pay $300 per month to the Chapter 13 trustee pursuant to a Chapter 13 plan for a period of 5 years, for a grand total of $18,000.00. That money is disbursed “pro rata” to your unsecured creditors. After the five years, the remaining balances owed to these creditors are discharged, meaning you no longer owe them any money.

While you are in a Chapter 13 bankruptcy, the automatic stay will keep your creditors from attempting to collect the debt you owe, which means no collection calls or letters. Additionally, your creditors are not allowed to continue to charge interest on the money you owe while in Chapter 13.

Finally, in your case, there may be some extra benefits to filing a Chapter 13 instead of a Chapter 7. For instance, a Chapter 7 bankruptcy stays on your credit for a period of 10 years, but a Chapter 13 bankruptcy only stays on your credit for 7 years.

So, even if the means test does prevent you from filing a Chapter 7 bankruptcy, you may still get tremendous relief from filing a Chapter 13, but only your bankruptcy lawyer can tell for sure.

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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