The means test for chapter 7, similar to a current monthly income evaluation for chapters 11 and 13, the means test evaluates financial health by looking back in time six months. It examines your gross income averaged over the most recent six-month period. To clarify, income is the amount of money coming into the household. It’s anything that goes into your household regularly and will be added into that math.
When we look at the number at the end of that six months’ review, we compare it to the regional average for the number of family members you have in your household. The region is not just Northern Illinois for us though, it is the entire Midwest, so the numbers are slightly low for our area. For a household of one in 2021 Median Family Income is $58,698, and may change periodically. If a person looking to file bankruptcy has means test number that is higher that the Median Family Income allowed, we must evaluate further. We can reduce the figures by looking at specific expenses and deductions.
Some of the deduction that can be considered are based upon IRS standards, others are the actual amount paid each month such as: mortgage payment, car payment, income taxes, medical insurance and medical care.
If at the end of the financial review, the calculations reveal a negative number, you would qualify for a chapter 7 case. There is a presumption of bad faith when a person files for bankruptcy. The means test or current monthly income evaluation is our way to show that filing for bankruptcy was because it is needed. It shows the court, creditors and trustees that you need the relief that bankruptcy can give you.
How Long Does A Chapter 7 Typically Last?
For most people, chapter 7 is going to last three to four months. There are times and occasions where a case may take longer. Under most circumstances, a qualified attorney will be able to predict of a specific case will take longer.
What Is A Chapter 13 Bankruptcy?
A chapter 13 bankruptcy is also a tool to help people get out of debt, though it has some significant differences. The first one is that in chapter 13, which can help you protect assets, let’s say you have a car worth $10,000 above what you owe to a lender. If you don’t want to lose your vehicle, you can file a chapter 13. The catch is that if you want to keep this car, you must pay at least $10,000.00 to your unsecured creditors.
Chapter 13 is a payment structure plan, and it’s a payment plan based several different items such as your income and expenses and the current monthly income evaluation that I previously touched on and the value of your assets.
If a current monthly income valuation shows available funds for creditors that dollar amount is the minimum amount that one would have to pay unsecured creditors every month. If there are no available funds for creditors the amount of payment would look at your deductions and expenses compared to your income. Expenses need to be reasonable because it has to be fair to creditors.
A second reason a person is to cure late payments. This could be for a mortgage or rent, car payments, child support or any other secured debt. A chapter 13 allows a three to five-year period to cure back payments. This not something that can be done in a chapter 7.
There are many other ways a chapter 13 can help individuals. It would be best to reach out to a knowledgeable attorney to see what options are available.
For more information on Bankruptcy Law in Illinois, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (847) 440-5998 today.