The stated goal of federal bankruptcy law is to provide the honest debtor with a fresh start. To help you determine if you need a fresh start, a bankruptcy case is commenced by the filing of a petition. You must also file a statement of your assets and liabilities and schedules listing your creditors. The property a debtor can keep through the bankruptcy is determined by the specific exemptions available under state law. Before deciding the appropriate course of action one may wish to explore alternatives to bankruptcy to gain a better understanding of the bankruptcy process.
There are different types of bankruptcy.
See types of Bankruptcy's Here
For Consumers, gerneally there are two types of bankruptcy.
Chapter 7- Commonly referred to as a "liquidation"
Chapter 13 or "Individual Debt Adjustment"
The first part of the bankruptcy filing process is collecting all of your personal financial information. This will include a list of all your secured and unsecured debts (you might find ordering your credit report helpful), tax returns for the last two years, deeds to any real estate you own, car titles, and any other loan documents you may have. Also arrange to take a credit counseling course.
Then either your attorney, or yourself if you decide to file without the help of an attorney, will need to complete the bankruptcy forms. These forms, collectively are referred to as the schedules and ask you to describe your current financial status and recent financial transactions (usually within the last two years). Your attorney will also complete a "means test". The means test is used by the courts to determine eligibility for Chapter 7 or Chapter 13 bankruptcy. If you are filing a Chapter 13 bankrupty, a proposed repayment plan must also be submitted with your petition. Also prior to filing your petition, every person must complete a credit counseling course and file a certificate of completion with the Court. After the bankruptcy petition is completed you will need to file the petition with your local United States Bankruptcy court. The Court's filing fee for filing a chapter 7 bankruptcy is $299 and the Court's filing fee for a chapter 13 is $274.
Immediately upon filing your petition with the bankruptcy an automatic stay goes into effect. This provision prevents creditors from making direct contact with you or staking a claim to any of your property from the date of filing. Approximately a month after filing, the trustee will call a first meeting of creditors. This meeting, often call a 341 meeting, requires the presence of the debtor. Creditors rarely attend the 341 meeting if they have some specific questions about the bankruptcy filing. Objections are typically resolved by negotiation between the debtor or the debtor's counsel and the creditor. If a compromise can not be reached, a judge will intervene.The meeting of creditors typically lasts about five minutes. If there are no challenges, you will receive a notice from the court, usually within four to six months in a chapter 7 case that the bankruptcy is discharged. A chapter 13 case is discharged after your repayment plan is completed.
The Means Test
The Means Test is used to determine if filers are eligiable to file for relief under Chapter 7 of the Bankruptcy Code. The information provided here is for informational purposes only. Every situation is unique.
The first step in applying the means test is to look at average income for the 6 months prior to filing and compare it to the median income for that state.If the income is below the median, then Chapter 7 remains open as an option. If the income exceeds the median, the remaining parts of the means test comes into play.
| Means Test Median Incomes as of 3/15/09 |
| Household Size | Median Income |
| 1 | $47,355 |
2 | $60.049 |
3 | $68,830 |
| 4 | $81,184 |
If the debtor's income exceeds state median income, a further analysis is performed, looking at the debtor's calculated ability to fund a Chapter 13 plan. The debtor's disposable income is calculated applying a mix of actual and standardized expenses to the debtor's previous average income! If the debtor can pay $10,950 in five years or as little as $182.50/month to creditors, a presumption arises that a Chapter 7 filing is "abusive".The presumption of abuse may be rebutted by the debtor by presenting facts and circumstances not provided for in the prescribed test. One obvious "special circumstance" might be that the debtor is now unemployed and doesn't really have the ability to pay that the artificial test suggests.
The following flow chart, created by Judge Maureen Tighe of the United States Bankruptcy Court, Central District of California, explains the test.
Means Test Chart