Making the decision to file bankruptcy is a difficult one. You should know that you are not alone. Over 800,000 people filed for bankrutpcy protection in 2007. That number is expected to top one million in 2008.
You should know that it is a process that will take time. You will need a bankruptcy attorney to guide you through the process and explain each step. Personal bankruptcy cases fall under Chapter 7 (liquidation) and Chapter 13 (wage earner). There is a means test that is used to determine if a person will qualify for Chapter 7 bankruptcy.
First you must compare your income over the last six months to the median income for your state. In Texas, the current median income used by the bankruptcy courts is just over $44,000 a year. So in essence, if you earned less than $22,000 in the past six months, you would automatically qualify for Chapter 7 bankruptcy. If your income is above this level, there is more to the means test.
If your income is above the median income, then you will move to the calculation of your disposable income. To determine how much disposable income you have, you will subtract your expenses (such as rent, utilities, child care expenses, etc.) from your income.
This will be used to determine how much you can afford to pay your unsecured creditors over the next 5 years. If this amount is more than $10,000 over that five year period, or $167 per month, you most likely will not be allowed to file Chapter 7 bankruptcy.
If it is less than that, the means test will continue. You will take the amount you can afford to pay and compare it to the amount of unsecured debt that you have. If the total of your disposable income for the next five years is less than a quarter of your unsecured debt, you can file Chapter 7 bankruptcy. If it is more than that, then you will have to file Chapter 13.
The means test is a complicated calculation. There are deductions that may be available to you that an experienced attorney may know about. Having an attorney on your side that understands the means test will help.