Filing for Chapter 7 bankruptcy may be your preferred option, depending on your debts and assets. The Chapter 7 process is quicker than a multiyear repayment plan and still allows you to protect many of your important assets. Some bankruptcy filers are discouraged from attempting Chapter 7 bankruptcy because of the Chapter 7 bankruptcy means test. A test sounds like an obstacle that is meant to prevent people from using Chapter 7 bankruptcy unless they have a below average income. However, that is not how the test works. Here are four facts about the means test that you should understand:

1. Many Filers Do Not Take the Test: The means test is required only if you have a median household income that is at or above your state’s median income. Anyone with an income below the state median does not have to take the test to qualify a for Chapter 7 bankruptcy. 
2. Many People Pass the Means Test: The Chapter 7 bankruptcy means test was created to determine whether someone has enough disposable income to afford a Chapter 13 bankruptcy repayment plan. Bankruptcy law assumes that people below the state median income cannot afford it, but people at or above the median may be unable to afford it as well. Your disposable income is the money left over from your income after necessary expenditures. You will pass the test as long as your disposable income is too low for you to reasonably sustain a meaningful repayment plan.
3. Identifying Expenses Helps: When calculating your disposable income, it is important to list all of your financial obligations that take away from your regular earnings. These could include taxes, healthcare, insurance, childcare, court-ordered payments, and secured debt payments. These expenses help reduce your disposable income and can help you qualify for Chapter 7.
4. When You Take the Test Can Make a Difference: The means test calculates your median income based on your income for the past six months. 

You can fail the test and still qualify for a Chapter 7 bankruptcy.  There is a process called rebutting the presumption.  This is why you need to consult with an experienced attorney.

Contact a Frisco, Texas, Bankruptcy Attorney

You should not dismiss Chapter 7 bankruptcy as an option without first consulting a knowledgeable attorney. A Denton County bankruptcy lawyer at The Page Law Firm can evaluate your financial situation and tell you which type of bankruptcy will work best for you. Schedule a free consultation by calling 214-618-2101.

There are many secured loans that you could decide to reaffirm after completing Chapter 7 bankruptcy, but your home mortgage may be the most consequential one. Discharging your mortgage does not remove the mortgage company’s lien on your home. The mortgage company can foreclose on your home if you do not continue to make regular mortgage payments. While it is possible to continue making payments without reaffirming the mortgage, a reaffirmation agreement creates personal liability on the loan. It is important to note that reaffirming a mortgage is not the best option for every bankruptcy case. Because the Bankruptcy Code does not require a reaffirmation for real property (your home) unlike personal property (your car), there are several questions you should ask yourself before making that decision:

1. Will I Be Able to Keep Up With the Payments?: Reaffirming your mortgage means you will again have personal liability for the loan. However, you may have some advantages that did not exist before your bankruptcy. Discharging debts after bankruptcy may allow you to put more of your income towards your mortgage. You should calculate your monthly budget before you reaffirm any debts.
2. Was My Mortgage the Primary Reason I Filed for Bankruptcy?: The great thing about discharge is that it frees you from a debt obligation, even though in some instances that means you cannot keep the property. Reaffirming your mortgage may undo one of the primary benefits of bankruptcy. You should also consider the value of the property and the equity you have in it. You may be better off letting your mortgage company foreclose on your home if your mortgage is underwater--meaning that you owe more on the mortgage than the property is worth.
3. What Are My Other Housing Options?: You obviously have to live somewhere else if you allow the mortgage company to foreclose on your home. Do you have another place in mind where you can move? Will it accommodate yourself and your family? How much will the new home cost? You need to answer all of these questions before surrendering your home.
4. What Would Happen If I Defaulted on the Mortgage?: The mortgage company will most likely foreclose on your home if you start to miss payments again. If you have signed a reaffirmation agreement,  the mortgage company can hold you liable if you owed more on the mortgage than what the mortgage company received by selling the property.

Contact a Frisco, Texas, Bankruptcy Lawyer

You can plan ahead during your bankruptcy for whether you want to reaffirm your mortgage. A Denton County bankruptcy attorney at The Page Law Firm can discuss the advantages and disadvantages of reaffirmation. Schedule a free consultation by calling 214-618-2101. 

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We recently discussed whether you should continue to lease a vehicle when you are filing for bankruptcy. You are more likely to have to decide whether you will reaffirm your car loan. In a Chapter 7 bankruptcy case, you can surrender (give back your car) and discharge remaining debts at the end of your case. With a reaffirmation agreement, you keep the vehicle in exchange for continuing to make loan payments. However, you should carefully consider the consequences before you enter such an agreement.

Why You May Want to Reaffirm

Texas bankruptcy law has a generous motor vehicle exemption that can prevent a Chapter 7 bankruptcy trustee from selling your vehicle. You are allowed to exempt the full value of one vehicle per member of your household with a driver’s license. You can also exempt a vehicle if an unlicensed member of your household relies on someone else using a vehicle to transport him or her. However, if you do reaffirm, a bankruptcy exemption does not prevent a lender from repossessing your vehicle after bankruptcy if you are behind on your loan payments. A lender may offer you a chance to reaffirm the loan because it would prefer you to continue paying back the loan. A reaffirmation agreement can be advantageous to you because:

• You will keep the vehicle;
• You may be able to negotiate more favorable terms for the loan; and
• Paying the loan can help rebuild your credit rating after bankruptcy. 

Why You May Not Want to Reaffirm

You filed for bankruptcy in order to relieve yourself from debts. By reaffirming your loan, you are renewing your debt obligation and leaving yourself vulnerable if you cannot keep up with your payments:

Protecting your motor vehicle is often a priority during your bankruptcy. In a Chapter 7 case, different rules apply when you are leasing a vehicle. Monthly lease payments may be cheaper than loan payments, but you do not actually own the vehicle. Chapter 7 bankruptcy filers must decide whether they will assume or reject their vehicle lease.

Assuming the Lease

Filing for bankruptcy puts an automatic stay on your vehicle lessor’s attempts to repossess your leased vehicle. The bankruptcy trustee technically has 60 days to claim your lease, but this is rarely done because the trustee would need to find someone else who would be willing to pay more than you to lease the car. You should decide whether you want to assume the lease before that deadline. You can keep the vehicle by assuming the lease, but:

• You will be responsible for continuing payments under the lease contract;
• The lessor can reject your request to assume the lease and try to repossess the vehicle (but that rarely happens); and
• The lessor can repossess the vehicle if you cannot keep up with payments.

Chapter 13 bankruptcy can help you keep your leased vehicle if you are behind on lease payments because you can include the payments in your long-term repayment plan.

Before you file for Chapter 7 bankruptcy, you should first determine whether you will qualify by using the means test. People often think of passing a test as a huge obstacle to achieving their goals. However, a bankruptcy means test is unlikely to prevent you from filing for Chapter 7 bankruptcy if you need the advantages that come with this form of bankruptcy. You may be at greater risk of not qualifying for Chapter 7 bankruptcy because you were not thorough enough in documenting your income and expenses. An experienced bankruptcy attorney will conduct the means test for you and tell you whether the results suggest that you will qualify for Chapter 7 bankruptcy.

Meaning of the Test

The means test was created to prevent people from using Chapter 7 bankruptcy when they have sufficient disposable income, based on certain allowable expenses, to make a meaningful payment on their unsecured debts. Chapter 7 bankruptcy is advantageous in some situations because:

Before a debtor can file for bankruptcy, they must complete a certified credit counseling course. What is this required course, why do you need it, and how can you make it work to your advantage? The following information explains and provides some important details on how an attorney can assist you through the bankruptcy process.

What is Pre-Bankruptcy Credit Counseling?

Once you have decided that bankruptcy is the right option for you, you must then decide which type of bankruptcy you would like to file. In some cases, the decision is based on your circumstances. In others, it is a matter of personal preference. Learn more about the types of bankruptcy available to individuals and small businesses, including how to determine which one may be most appropriate for you, with help from the following information.

The Basics: Chapter 7 versus Chapter 13

At first glance, all forms of bankruptcy might appear the same. However, there are some distinct differences between Chapter 7 and Chapter 13. For example, Chapter 7 bankruptcy discharges most forms of secured debt, meaning the debtor is no longer responsible for them. Another major difference is how assets are retained during each bankruptcy process. For example, if a borrower is making payments on a vehicle, the creditor may still repossess the car if a Chapter 7 bankruptcy is filed. In Chapter 13, the debtor may be permitted to keep the vehicle if they continue to make the agreed upon payments.