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| Are You Eligible for a Chapter 7 Bankruptcy? |
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| Written by Stephen Trezza |
| Friday, 17 April 2009 10:11 |
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A bankruptcy trustee uses two different analyses to determine whether or not a debtor is eligible for a chapter 7 bankruptcy. Using the median/means test, the trustee averages the debtor's income for the previous six months. In addition, the trustee will look at a debtor's current income and compare this to the current expenses as required under Schedule J of the bankruptcy petition. A debtor must qualify using both of these assessments in order to file for chapter 7 bankruptcy. The median/means test is simply a clear-cut analysis of the debtor's income and expenses. Bankruptcy rules take into account the size of the debtor's family and in which county the debtor resides. An amount of what the debtor's gross income must be under is then set. If the debtor's combined gross income is under this amount, the median test has been satisfied. If the income is greater than the allowable amount, the bankruptcy trustee will apply the means section of the test. The means test compares a six-month average of the debtor's income to a six-month average of the debtor's expense. If the income average is less than the expenses, the debtor qualifies under the median portion of the test. The other analysis used to determine eligibility for chapter 7 falls under Schedule I and J of the bankruptcy petition. The bankruptcy trustee will compare the debtor's current monthly income and current monthly expenses. The trustee is looking to make sure that the debtor does have sufficient disposable income in which to pay monthly debts. If the debtor does have enough disposable income to discharge debts, the case will likely be dismissed if it has been filed with the court. Unlike the means/median test, this is a judgment call made by the bankruptcy trustee. Here is a hypothetical example of Schedule J in action. A debtor has a disposable monthly income of $100 per month. The overall unsecured debt he would eliminate via bankruptcy is $40,000. It is unlikely a trustee would view $100.00 as a large enough monthly payment to pay off the $40,000 in unsecured debt within a reasonable time. In a second hypothetical example, this same debtor now has $500 in disposable income when his expenses are subtracted from his income. If so, the trustee may determine that the debtor has enough money left over at the end of the month to pay off his $40,000 in unsecured debt over a reasonable time span. If so, the case will likely be dismissed. It is also important to note that bankruptcy rules only allow for certain expenses to be included on the Schedule J calculation. The trustee determines what, if any, other expenses can be included in the bankruptcy petition. If the trustee chooses not to include some of the expenses, it can increase the debtor's monthly amount of disposable income. If this amount increases significantly, then typically you'll find that the debtor's case will be dismissed by the court. About the Author: Stephen Trezza has successfully taken on a wide variety of cases, including filing many Tucson chapter 7 cases. If you need a Pima County bankruptcy lawyer, visit the Trezza and Associates site now. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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