Means Test

One of the ways for a consumer to determine whether Chapter 7 is appropriate is by using the "Means Test". A Bankruptcy Petition Preparer (BPP) is allowed to help a consumer with the math portion of the means test, providing the BPP does not advise the consumer on which type of bankruptcy to file.

"Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income."

Bankruptcy Code

Article I, Section 8, of the United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies." Under this grant of authority, Congress enacted the "Bankruptcy Code" in 1978. The Bankruptcy Code, which is codified as title 11 of the United States Code, has been amended several times since its enactment, most recently modified in 2005. It is the uniform federal law that governs all bankruptcy cases.

The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the "Bankruptcy Rules") and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals.

Four signs you should consider bankruptcy:

1. Your balances won’t go down. Are you making payments on your debts, but the amount you owe never gets any smaller? If you are only ever making payments on interest and are not able to touch the principal amount of your debt, it may be time to consider filing for bankruptcy. As a rule of thumb, if your debt cannot be paid off in full after about three years, it may be in your best interests to consider bankruptcy.

2. You are using retirement funds to pay your debts. Raiding your retirement funds is essentially stealing from yourself during a time when you will be relying on your savings to get by. Whether you are considering or have already taken an early withdrawal, this is a sign that bankruptcy may be the solution you require. Paying off your loan faster through the use of your retirement funds will cost you more in the long run when you don’t have those resources later on.

3. Others will suffer if you do not file. Caring for dependents like children, a disabled family member, or an elderly parent can be financially draining. If you find yourself unable to both care for your family and manage your debts, your family’s well-being should come first. Filing for bankruptcy can help relieve you of your debts and allow you the fresh financial start you need to continue ensuring the health of your family.

4. Your mortgage is under water. Bankruptcy can provide much-needed relief if you are upside down on your home.