If you, like so many others across Illinois, feel as if you are drowning in unmanageable credit card debt, you may be weighing your options and trying to decide if filing for bankruptcy may help you find the relief you seek. Most personal bankruptcies are of either the Chapter 7 or Chapter 13 variety, but there are some important differences between the two. In brief, Chapter 7 bankruptcies are typically for low earners who do not have the capacity to pay back their debts, while Chapter 13 bankruptcies require that you pay back at least part of what you owe.
Whether you have the opportunity to pursue a Chapter 7 bankruptcy, however, depends on how much “disposable income” you have on hand to pay back your debts. You can typically determine whether you are eligible for Chapter 7 bankruptcy by taking what is known as the bankruptcy means test.
Taking the test
The first step in taking the bankruptcy means test generally involves securing as much information and documentation you can about your finances and expenses over the last six months. The next step involves determining what the median household income is in Illinois and whether your household income places you above or below that threshold. If your income is less than the median household income in Illinois, you are free to move forward with a Chapter 7 bankruptcy filing.
If your income comes in above the median household in Illinois but you still want to file for Chapter 7, you will have to move on to the next part of the means test. The next part is a bit more involved, and it requires that you gather meticulous information about your expenses from the prior six months. Depending on how much of your income you have left over after paying off “allowable expenses,” such as housing, food and so on, you may or may not be able to proceed with a Chapter 7 filing.
If you do not pass the means test, you may still be able to seek relief through a Chapter 13 bankruptcy. If a Chapter 7 filing is still preferable, you can always hold off and take the test again in six months.