You work hard but there's never enough money to go around. The debt is mounting and you are falling further and further behind with no idea about how to catch up. Like many Americans today, you work hard to take care of yourself and your family but you're still struggling to make ends meet.
What are your options? Should you file for bankruptcy? What would that mean? Is there more than one type?
The means test determines eligibility
Chapter 7 bankruptcy and Chapter 13 bankruptcy are two options that may offer you some relief. While the process may be confusing, there is a simple method for figuring out if you qualify. The means test has been established to determine whether or not you qualify.
The first part of the means test involves determining your household income over the past six months. If your income is below the median income for your state, you qualify for Chapter 7 bankruptcy. You can erase most if not all of your debts but a trustee can liquidate your property and assets to pay your creditors (note that a bankruptcy attorney can help you keep most of your assets by maximizing exemptions).
You may still file for bankruptcy even if you don't qualify under the means test
If you don't qualify, there is still hope. Chapter 13 bankruptcy is another option.
In a Chapter 13, you add up certain "allowable expenses" like rent, groceries, clothing, and medical costs are calculated and the remainder is considered disposable income to be used for paying off debt. This determination is complicated and the standards vary across the nation, but Chapter 13 bankruptcy is an alternative for people who don't qualify for Chapter 7 bankruptcy or are looking for something a little different.
Qualifying does not automatically mean that Chapter 7 is the best option
Chapter 7 bankruptcy may not be your best option even if you do qualify under the means test. If you have secured debt with equity such as a home, chapter 13 bankruptcy would allow you to catch up on debts while holding on to those assets. Choosing Chapter 13 bankruptcy could potentially give you the option of proposing a plan to restructure your debt and repay it.
You don't have the same appeals process that you would in other types of litigation when it comes to filing bankruptcy, so it is in your best interest to reach out to an experienced professional to determine what you qualify for, which is the best option and to ensure that all of your paperwork is handled appropriately.