In order to file for a complete discharge in chapter 7 bankruptcy, it is necessary to first pass a means test, which determines whether there is a presumption of abuse, or no presumed abuse.
The Means Test simply takes current income, subtracts certain out of pocket actual expenses including tax witholdings, health insurance costs, and term life insurance.
The test then uses certain median cost estimates for housing, food, utilities, automobiles, and other expenses to come up with a hybridized income statement, then compares this to the median family income with your number of dependents in your specific county or metropolitan area.
While the means test is valuable in determining whether you can likely file for protection under chapter 7 of the United States Bankruptcy Code, it’s not the only option available to fix financial issues. Other factors to consider in the solution is duration of the harship (whether it is expected to be long term, short term, or permanent in nature), the severity of the hardship (i.e. was the hardship caused by the main bread-winner’s loss of job or injury, or by a secondary bread winner losing a part time job), the total amount and structure of the debt, and the assets available to potentially repay the debt as is, or under various settlement strategies.
In short, there are many considerations. I find in most cases that after we talk through the issues and get to the heart of the harship, the final strategy becomes a cooperative process with the client. Teaching the basics goes a long way here– If a client is informed and aware through a cooperative process and good communications, they can alert the lawyer to the specifics of certain situations. If the process is simply one-sided, it is never quite as effective.
An effective result is one that takes the financial goals into consideration, while balancing it with the need for the family’s emotional health and well being. This is arrived at through good communications and a full exploration of each client, their family situation, employment situation, and attitudes and desires in the process. A good result becomes self-evident, and the ends are peace of mind and financial stability, so long as the result is in line with the goals at the beginning– said another way, there is peace when we travel the road and get to where we set out to get to in the beginning.
About the Author: Joseph M. Bochicchio, PLLC., is a licensed Charlotte, NC Bankruptcy Lawyer with nearly 2 decades of experience in finance and law. His Charlotte Debt Settlement Law Firm is committed to providing legal and ethical guidance for North Carolinians facing financial hardship.