Preparing For a Chapter 7 Bankruptcy Means Test
Bankruptcy is not something you should jump into out of the blue, and there are steps you need to take to see if you are entitled to it. Determining what type of bankruptcy you qualify for begins with a means test. Let’s see how to prepare for this first step and where to go next.
What is a means test?
If you are unsure of what type of bankruptcy you qualify for – Chapter 7 or Chapter 13 – the means test is a good place to start. Even though it’s called a quiz, don’t worry – it’s not like a pop quiz!
It usually consists of at least one or more forms. These forms help you determine if your means (your financial resources) are greater or less than what qualifies you to file for Chapter 7 bankruptcy.
In bankruptcy, “average” refers to the amount of income you have available. Income levels vary from state to state, so to qualify for Chapter 7 bankruptcy, you must earn less than the average income level of a family of the same size in your state.
If you earn more than that, you might still be eligible for Chapter 7 bankruptcy, but you still have a few steps to take before you can be sure. If you earn less than your state’s median income, you are probably eligible for Chapter 7 bankruptcy and you are now done with the means test!
Determine your eligibility for Chapter 7
Once you have completed the materials for the means test and find out that you earn more than the median income in your state, you move on to step two of the test. This step is to determine if you have enough disposable income to try to repay your debts.
This part of the means test job is to calculate how much disposable income you have left each month after paying your authorized monthly expenses such as rent, mortgage, and car loan obligations. If the means test shows that you can afford what you need and that you still have enough left to attempt to make payments on your unsecured debt, such as credit cards, you are probably not eligible for Chapter 7 bankruptcy.
In this case, you may be eligible for Chapter 13 bankruptcy. Chapter 13 gives you three or five years to pay your creditor at least a portion of what you owe before any remaining unsecured debt is cleared by a bankruptcy. successful discharge. This differs from Chapter 7 bankruptcy, where your assets are liquidated to collect as much money as possible to pay off your debts.
What does chapter 7 mean for your car?
If you qualify for Chapter 7 bankruptcy and have a car loan, you have several options. Generally, if you can protect the value of your car with a vehicle exemption, you may be able to keep it. However, if your vehicle is worth more than what you can exempt, you should decide in advance whether you want to keep it and the loan.
Here are the standard options that generally apply to borrowers considering Chapter 7 bankruptcy:
Reaffirmation means that you and your lender accept the terms of your original or renegotiated contract and agree to continue to make payments as planned. Since reaffirmation involves signing a new agreement with your lender, you may be able to negotiate the term of your loan at that time.
Often times, borrowers who go bankrupt and have a loan in reverse can get rid of this negative equity by asking the lender to accept the current market value of the vehicle, instead of what is owed on your loan. You may even be able to reaffirm your loan if you are behind in payments, by asking the lender to incorporate those missed payments into your new agreement.
Reaffirmation is not available in all situations or in all states, so it is important that you understand whether you qualify or not.
To buy back your car, you pay the lender the current value of the vehicle in a lump sum instead of your loan amount. You can do this whether or not you are up to date with your loan repayment as long as you have the funds to do it. In this case, you can save a lot of money if your car has depreciated a lot or if you are in a negative equity situation.
Return the vehicle:
If you choose not to keep your auto loan when you file for bankruptcy, you must select this option when you file. If this is your choice, you return the vehicle and are released from all liability, on any remaining loan balance.
Need a vehicle after Chapter 7?
Once you are released from your Chapter 7 bankruptcy, usually after four to six months, you should be able to qualify for a new car loan if you need it, but you may need to work with a lender in the future. bad credit. Bankruptcy impacts your credit score, which can make it difficult to qualify for vehicle financing with all lenders, but we want to help you make it a little easier.
Here has Auto Express CreditWe have assembled a network of special finance dealers who are registered with subprime lenders to help people in unique credit situations, such as post-bankruptcy. We’ve been connecting consumers with local dealers for over 20 years and we’re eager to help you too. Get started now by filling out our fast, free, no-obligation auto loan application form.