Chapter 7: Liquidation Bankruptcy
Bankruptcy Chapter 7 allows individuals to discharge up to $394,725 in unsecured debts and restructure secured debts.
- Automatic Stay: A temporary halt of creditor collection activities
- Clinic Fees: Up to $1,100 for medical and dental expenses
- Means Test: Assesses income-to-disposable-income ratio to determine eligibility
Chapter 13: Reorganization Bankruptcy
Bankruptcy Chapter 13 allows individuals with a steady income to create a repayment plan for debts and restructure non-dischargeable debts.
- Means Test (same as Chapter 7): Income-to-disposable-income ratio assessment
- Repayment Plan: Typically lasts 3-5 years, with monthly payments ranging from $300 to $1,500
- Priority Debts: Reorganization plan must include non-dischargeable debts like taxes and student loans
The Means Test: Assessing Income-to-Disposable-Income Ratio
The means test is a calculation of an individual's income divided by their disposable income (income minus necessary expenses). The result determines eligibility for Chapter 7 and Chapter 13 bankruptcy.
- Income: Gross income from all sources, including wages, tips, and self-employment
- Disposable Income: Gross income minus necessary expenses, such as rent/mortgage, utilities, food, and transportation
- Necessary Expenses: Standard categories of expenses, like medical bills, minimum debt payments, and groceries