Bankruptcy allows debtors in Braintree, Massachusetts, to get relief when they see no way of paying their debts. Common reasons to file for bankruptcy include unexpected medical debt, divorce and job loss. However, bankruptcy has undergone changes to avoid abuse of the system.
Qualifications for Chapter 7 bankruptcy
Chapter 7 is a consumer bankruptcy that erases certain unsecured debts through a liquidation process that converts assets to cash. In 2005, Congress revised the bankruptcy code to prevent high earners from filing Chapter 7. The Bankruptcy Abuse and Consumer Protection Act added the means test to determine qualification.
The means test calculates disposable income from the last six months with adjustments and compares it to the state average. If the debtor’s income falls below the median for a same size household, they pass the test.
Debtors who don’t pass must take the second part of the test, which calculates disposable income using allowed expenses. Total disposable income for 60 months cannot surpass $12,850, so debtors passing this amount don’t qualify for Chapter 7.
Qualifications for Chapter 13
Chapter 13, often called a wage earner’s plan, reorganizes debt into manageable payments without selling assets. The debtor submits a plan to the court for approval, and they get three to five years to complete it. The trustee makes the payments to creditors.
Chapter 13 benefits filers with steady income who have enough disposable income to pay debts. However, Chapter 13 limits unsecured debts to $419,275 and secured debts to $1,275,850. Debtors cannot file any type of bankruptcy within 180 days of a previous dismissal.
Bankruptcy gives a debtor the benefit of the automatic stay, which prevents creditors from further pursuing debt. However, any type of bankruptcy can stay on credit reports for several years, so an individual seeking relief should seek an attorney’s advice to discuss their options.