Virginia consumers who are considering bankruptcy might wonder whether they should file for Chapter 7 or Chapter 13. Chapter 7 involves discharging all eligible debts while Chapter 13 involves creating a payment plan that allows the filer to keep some assets. In order to qualify for Chapter 7, it is necessary to pass a means test.
The first stage of the means test is simple. This checks whether the person makes less than the state median income. This is based on the last six months of income. The test also takes into account any significant decreases or increases in income. In 2013, 88% of people who took this test passed it. Those who do not pass this initial test but still want to file Chapter 7 and those who wish to file Chapter 13 must move on to the next stage. This is complex and involves gathering as much information as possible about the last six months of expenses. Allowable expenses include such costs as rent, food and clothing. What is left outside of allowable expenses is disposable income that can be used toward the debt.
Even a person who passes the initial Chapter 7 means test may want to file for Chapter 13 to keep some assets. A person who fails the means test can take it again after six months.
Filing for bankruptcy forces creditors to put an immediate stop to any activity, including phone calls, lawsuits and foreclosure. While it is not possible to discharge certain types of obligations in bankruptcy, filing for Chapter 13 may make it possible to work out a new payment plan for those as well. People who are struggling with debt may want to discuss their options with an attorney.