When you start to consider filing for bankruptcy, it’s best to understand all your options before you make any commitments. If you are, or have been, a military service person considering bankruptcy, now may be the time to act. An exemption that applies specifically to you will expire soon, and you may want to take advantage of it.
What Is Chapter 7 Bankruptcy?
The two most common types of bankruptcies are Chapter 7 and Chapter 13. In both cases, a debtor applies to the court for help in paying or otherwise discharging their debts. What distinguishes the two is how the debts are discharged and how much you have to pay back.
In Chapter 13, the debtor submits a payment plan to cover some of their existing debts. A large portion of what they owe is forgiven, however, they must still pay certain types of debts. When filing Chapter 13, you may be able to keep assets like a home or car, but you will be liable for any money you owe that uses those assets as collateral, for example, home and car loans.
With Chapter 7, a greater portion of your debt is erased. Some of your assets may be seized and sold to pay some of what you own. You may be able to keep collateral from secured loans, such as your car, though that is something that will be negotiated in the course of your bankruptcy. The major advantage of Chapter 7 is that you may not have to pay back any part of your debts.
Not everyone can file for Chapter 7 bankruptcy. It is a more extreme option where assets are sold and large portions of debt are erased. Whether you can file for Chapter 7 is determined by something called the ‘means test.’
What Is The Means Test?
The means test determines whether you qualify for Chapter 7 bankruptcy. Basically, the test compares your income to your expenses. Any money you make over what you pay for bills is considered your ‘disposable’ income. The more disposable income you have, the less likely you are to qualify for chapter 7.
There are a few specifics that make it a little more complicated than it might appear at first. Your income listed will be the average of your income for the last 6 months. You debt must be primarily personal debt, and not due to business expenses. If your income is less than the median income for your state, you automatically qualify. Here is a calculator to determine whether you qualify: http://www.legalconsumer.com/bankruptcy/means-test/
If you’ve served in the military since 2001, however, you may qualify for an exception that will allow you to file for Chapter 7 even if your income is higher than the median.
Who Qualifies For The Exemption?
If you served in homeland defense duties for at least 90 days since September 11th, 2001, you might qualify for the means test exemption. This includes reservists and those who served in the National Guard who were deployed overseas.
The date of filing must be within 541 days of your last day of active duty, otherwise, you may not qualify. If you are a disabled veteran, you may qualify no matter how long it’s been since you actively served.
This exemption may be extended by Congress, but at the moment it expires on December 18th of this year. If you’re considering filing for bankruptcy, it may be a good idea to consider filing soon to take advantage of this opportunity.