Bankruptcy is a useful tool for many people, but that doesn’t mean that everyone qualifies. Those who are trying to use Chapter 7 bankruptcy have to take a means test first. This essentially measures their assets and income to see if they can actually use Chapter 7 bankruptcy or not.
Those who earn too much money could fail this means test. They may still have debt, but they don’t meet the qualifications for Chapter 7, so they cannot use liquidation bankruptcy. What happens next? Are they just out of options?
They may be able to use Chapter 13
In a situation like this, the person in question may be able to use Chapter 13 bankruptcy instead. This is often called wage earners’ bankruptcy, and the people who fail the Chapter 7 means test will often still qualify.
It is important to note that Chapter 13 is different. Chapter 7 requires the liquidation of non-exempt assets, and then the forgiveness of remaining debts. Chapter 13, on the other hand, create a repayment plan. This can consolidate different types of debt into one monthly payment. You still do need to pay off the debt, but you usually get 3 to 5 years to make those monthly payments and eliminate it in this fashion. It’s different than Chapter 7, but it still offers some financial relief.
Considering your options
As you can see, bankruptcy may be a bit more complicated than you assumed, and you may have more options than you realized. Take the time to carefully consider all of your options to determine what will work best for you.