Attorney Explains the Chapter 13 Means Test to Greensboro Residents
What is Chapter 13 and why is it important in the Burlington area?
Chapter 13 is the second of two bankruptcy chapters used by most consumers. Unlike Chapter 7, Chapter 13 is not liquidation. Rather, Chapter 13 is designed to allow debtors to keep their property while paying down their debt. Because the goal of Chapter 13 is property retention, it provides useful legal tools, including the ability to:
- Stop a foreclosure
- Protect co-signers and their property
- Cram down certain secured loans to the value of the collateral
Whether you select Chapter 13 for its unique benefits because Chapter 7 exemptions do not adequately protect your property, or simply because you do not qualify for Chapter 7, I can help you through the process at the Blalock Law Offices.
What is the Chapter 13 means test?
While Chapter 13 bankruptcy also makes use of a means test, it is not an eligibility test as it is under Chapter 7, nor is the benefits — such as stopping foreclosure — dependent on passing the means test. Rather, the Chapter 13 means test affects the type and duration of the payment plan under the Chapter 13 bankruptcy. The Chapter 13 means test is based on the household annual gross income. If your gross income is greater than the state median for a household of that size, a 60-month (five-year) payment plan must be used. If your yearly gross income is less than the state median, you may use either a 36-month (three-year) or 60-month payment plan.
Additionally, like the Chapter 7 means test, the Chapter 13 means test also requires that average monthly income be calculated. After calculating the monthly income, your income is again compared to the state median. If your income equals or exceeds the median, the court assumes that you can pay back unsecured creditors. If your average income is below the median, the court assumes that you cannot pay back unsecured creditors.
How is the means test calculated for Chapter 13?
When you file for Chapter 13, the means test uses the same calculations as for Chapter 7. The Chapter 13 means is based on your current monthly income (CMI). CMI is the average monthly income you received during the previous six-month period. To calculate CMI, you must include your income from nearly all sources, including:
However, certain payments for exceptional circumstances are not required to be included in the income calculation. Payments through Social Security and compensation for being a victim of war crimes, crimes against humanity or acts of terrorism do not need to be reported. It is essential that you work closely with your attorney because including one-time payments may result in an unachievable payment plan with onerous monthly payments. An Asheboro-area bankruptcy attorney can prepare your filing for you to give you an accurate and reasonable payment plan.
Contact us today to get a clearer understanding of Chapter 13 and its means test
Understanding the Chapter 13 means test and its calculations can make the difference in establishing a feasible repayment plan. At Blalock Law Offices, P.A., I can guide you through the process one-on-one. Please call today at 336-609-6878 or contact us online to schedule your free consultation.