Any individual or family that files federal bankruptcy must fill out a means test. This test aims to determine whether the debtor qualifies for Chapter 7 or if they must file Chapter 13. While Chapter 7 means the debtor must liquidate their assets, they can get rid of their debt in as few as 90 days after filing. Chapter 13, on the other hand, can take three to five years, and the bankruptcy is a restructuring where you pay as much of the unsecured debt as possible using a repayment plan.
This process begins by determining their monthly income in the six months leading up to filing bankruptcy. These numbers are then compared to the state’s median income using a Wisconsin Means Test Calculator, which is just over $4,500 per month for one individual in Milwaukee County in November of 2020. Those below this median in their country can file Chapter 7 Bankruptcy. Those above it in their county must file Chapter 13 Bankruptcy.
- Salary, wages, overtime, commission, tips, and bonuses
- Gross income from a profession, business or farm
- Rental and real property income
- Interest, dividends or royalties
- Retirement and pension income
- Annuities payments
- Spousal or child support
- Worker’s compensation benefits
It doesn’t include Social Security retirement benefits, Social Security Disability Insurance, tax refunds, temporary assistance for families and Supplemental Security Income.
The second step is necessary if the debtor needs to file Chapter 13. Here the debtor subtracts all actual and standardized expenses from the debtor’s disposable income to see if there is money to pay at least a portion of the unsecured debt in a repayment plan.
Arguing for Chapter 7
The debtor may have special circumstances where they believe that they qualify for Chapter 7, although a motion will likely dismiss it in bankruptcy court. Plausible possibilities include a medical condition or recent unemployment — the debtor must provide documentation to justify their claim.
Bankruptcy enables debtors to turn the page
Those who file often wish they’d done so sooner. This legal solution to climbing out of a financial hole can provide a long-absent peace of mind.