Debt can affect people emotionally and even physically. If you can't pay your car payment or your mortgage, you may start wondering, "Will the lender repossess my car?" Or you may stay up all night in bed thinking, "Will the bank foreclose on my house?"
Being in debt is not something to be ashamed of. Usually, people get in "over their head" for reasons out of their control, such as a sudden job loss, a workplace accident, an illness or a disease. Good people don't plan to stop paying their rent or their mortgage, and if they had the choice, they wouldn't let their medical bills go to collections.
Qualifying for a Chapter 7
When people accumulate so much debt that there is no end in sight, usually the best solution is for them to file a Chapter 7 or Chapter 13 bankruptcy. Of the two, Chapter 7 is usually preferable because it allows a debtor to erase or wipe out unsecured debts, such as credit card debt, medical bills, and personal loans.
With a Chapter 13 bankruptcy, the debtor enters a 3 to 5 year payment plan where he or she pays of all or a portion of their debts through the bankruptcy. So understandably, a lot of people would rather file a Chapter 7 because it usually means they can discharge more, if not all of their debts. However, not everyone qualifies for a Chapter 7.
Chapter 7 bankruptcy is for the low-income filers who really need it; for someone to qualify for a Chapter 7, their income cannot exceed a certain threshold. To determine if someone's income is low enough to qualify, they must pass the bankruptcy "means test."
To pass the means test, your income (in the past 6 months) must be less than the median income for a household of your size. If it is less, than you automatically pass. If your monthly income is too high, then you will have to file a Chapter 13 bankruptcy instead.
Most people who file a Chapter 7 bankruptcy don't have to make any payments, however, a Chapter 13 may be a better option for certain types of debts, such as a mortgage that is in default and threatened by foreclosure.
Before you decide what to do, talk to an experienced bankruptcy attorney for expert legal advice.