If your debts are piling up and your bills are unpaid, or if you’re getting rude phone calls at all hours from debt collectors, you might wonder if bankruptcy is right for you. You can get some answers by discussing your circumstances with the right Oklahoma City bankruptcy attorney.
For some people in some situations, bankruptcy is a practical option, but is it the right option for you? A bankruptcy lawyer can review your financial situation and help you make the right choice. Individuals and families usually file for a “Chapter 7” or a “Chapter 13” bankruptcy.
If you have never filed for bankruptcy, you will need some definitions. “Chapter 7” and “Chapter 13” are two of the fifteen chapters in the U.S. Bankruptcy Code, the federal laws that regulate bankruptcy in the U.S.
What Does a Chapter 7 Bankruptcy Accomplish?
Most people filing for bankruptcy would prefer to file under Chapter 7. A Chapter 7 bankruptcy discharges most of the debtor’s debts, including medical debt, unpaid utility bills, and credit card debt.
However, not everyone qualifies for bankruptcy under Chapter 7. What does a Chapter 7 bankruptcy require, who qualifies, and how do Chapter 7 bankruptcies differ from Chapter 13 bankruptcies?
You must pass a “means test” to determine if your income qualifies for bankruptcy under Chapter 7. Keep reading to learn if you can pass the means test and qualify for a Chapter 7 bankruptcy.
The Means Test – What is its Purpose?
The means test is used to prevent high-income individuals from filing for bankruptcy under Chapter 7. Those persons may still file for bankruptcy under Chapter 13, but they will have to repay part of their debts, whereas a Chapter 7 bankruptcy wipes out unsecured debts entirely.
You don’t have to be penniless, however, before you can take advantage of a Chapter 7 bankruptcy. If your expenses are substantial, you may still be able to file for bankruptcy under Chapter 7, even if your monthly income is also substantial.
The Means Test – How Does It Work?
A means test was established in 2005 to restrict Chapter 7 bankruptcies exclusively to consumers who can’t afford to pay their debts. The test determines your “disposable” monthly income. The higher that figure is, the more likely it is that you won’t qualify for bankruptcy under Chapter 7.
The first part of the Chapter 7 means test determines if your income is above or below the state median income. If you earn more than the median income in Oklahoma, the test determines if you have enough disposable income to pay a portion of your debts.
What are the Median Incomes in Oklahoma?
The median income in each state is calculated annually. These are the median incomes for households in Oklahoma as of May 1, 2020:
1. For a one-person household, the annual median income is $48,322.00.
2. For a two-person household, the annual median income is $58,436.00.
3. For a three-person household, the annual median income is $65,400.00.
4. For a four-person household, the annual median income is $75,326.00.
5. For a five-person household, the annual median income is $84,326.00.
6. For a six-person household, the annual median income is $93,326.00.
When You’ve Passed the Means Test
The first part of the means test is easy: If your monthly income is below the median income for the size of your household, you’ve passed, and you qualify for Chapter 7 bankruptcy.
If your household income surpasses the median state income, you must move onto the next step in the means test. You have to determine if your “disposable” income is enough to pay at least part of your unsecured debts.
To calculate your disposable income, you will need to subtract certain monthly expenses from your monthly income, including taxes, childcare, and insurance. After deducting your monthly expenses from your monthly income, if you have enough disposable income to pay a part of your debts, the court may determine that you cannot file for bankruptcy under Chapter 7.
If your disposable income is too high, you fail the test and do not qualify. But passing the Chapter 7 means test doesn’t necessarily mean that you should file for bankruptcy under Chapter 7. It only means that you can.
If You Fail the Means Test
If you fail the Chapter 7 means test, you may qualify for Chapter 13 instead, which means that you’ll pay off your creditors over the next three to five years by adhering to a strict repayment plan approved by the court.
In Oklahoma, whether you end up filing for bankruptcy under Chapter 7 or Chapter 13, or even if you choose an option other than bankruptcy, the first step in dealing with your debts is to have a discussion with the right Oklahoma City bankruptcy attorney.
What Does a Chapter 7 Bankruptcy Provide?
When you file for bankruptcy under Chapter 7, a court order for relief – “an automatic stay” – immediately takes effect. An automatic stay prevents creditors from harassing you about debts related to credit cards, medical bills, and most other consumer debts.
An automatic stay also temporarily ends wage garnishments, foreclosure proceedings, repossessions, and lawsuits brought against you by creditors.
However, once you have filed for bankruptcy under Chapter 7, your property is controlled by the bankruptcy court. You cannot give away or sell anything you own without the court’s approval.
At the end of the process, the court discharges all of your unsecured debts, although you still may owe for debts not covered by a Chapter 7 bankruptcy, such as back taxes, back child support, and student loan debt.
Now is the Time for a Fresh Financial Start
Bankruptcy is nothing to fear. You will emerge from bankruptcy with a fresh financial start, and you’ll be able to rebuild your credit and move constructively into the future. If you need the legal protection that bankruptcy provides, don’t wait another day.
If you believe that filing for bankruptcy under Chapter 7 may be right for you, get the sound legal advice you need and arrange to speak promptly with an Oklahoma bankruptcy attorney.