The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was created to stem perceived abuses by some people who were filing for Chapter 7 bankruptcy. Chapter 7 bankruptcy allows you to avoid paying back many of the creditors you owe money to, because you claim you don't have the money or resources to pay them back. Legislators felt that some people were intentionally getting into debt and then using the bankruptcy laws to escape paying what they owe. The intent of the Act was to root out the people who could afford to pay their debts and disallow them from using chapter 7 bankruptcy laws to escape the debt. Here is how the Act affects your ability to file a chapter 7 bankruptcy claim in 2016.
Median Income Test
You will have to supply information on your monthly income including, but not limited to, pay stubs, bank and investment statements, and rental property payments that are paid directly to you. The sources of income will be added up and compared to the median income in your state of people who have the same size family as yours. For example, in South Carolina, the median income of a family of four during 2015 was $67,641. If you have a spouse and two children, the combined income of you and your spouse would have to be below the $67,641 figure. If the figure is below this amount, you automatically qualify for chapter 7 bankruptcy. If your income is above this amount, you'll have to pass an income means test in order to file for chapter 7 bankruptcy.
Income Means Test
The income means test is designed to prove that you won't have any money left over to pay your debts after your daily and monthly living expenses are deducted from your income. Daily and monthly living expenses that are deducted are things like cost for food, mortgage or rent, and utilities you have to pay to provide you and your family with a basic standard of living.
Your income will then be compared to the amount you will need to make the minimum monthly payments on the debts you owe. If you do not make enough money to meet your monthly debt obligations, then you will be allowed to file a chapter 7 bankruptcy claim. If you do make enough to meet minimal payments on your debts, you will not be allowed to file a chapter 7 bankruptcy claim. For more information, talk to a bankruptcy attorney.