Even those with good jobs, a home and a strong sense of responsibility can wind up in a financially precarious position where they feel like they have to file for bankruptcy due to overwhelming debt. Of all of the different forms of personal bankruptcy available, Chapter 7 bankruptcy is arguably the most straightforward and aggressive.
Also known as liquidation bankruptcy, Chapter 7 proceedings involve a person in debt asking the courts to discharge those debts. The courts occasionally seize assets from the person filing in order to repay creditors as appropriate and possible. Once the courts approve the filing, the individual receives a discharge of their unsecured debt and can start rebuilding their financial lives.
Obviously, Chapter 7 bankruptcy can be beneficial for someone struggling with unsustainable levels of debt. Unfortunately, it is also one of the more difficult forms to qualify for, as there are limits on the assets you can protect and the income you can earn.
You have to pass a means test to file for Chapter 7 bankruptcy
In order to protect companies that extend credit or provide services without immediate payment from abuse by those who might seek to discharge debts frivolously, there are restrictions on who can file for Chapter 7 bankruptcy and how frequently they can do so.
In order to qualify for Chapter 7 protections, the person filing will generally need to pass a means test. In this test, the applicants adjust their annual income with certain deductions for necessary expenses. They then compare this adjusted income to the state median for their household size.
If their income is at or below the median for the state, they pass the means test and qualify for Chapter 7 bankruptcy. If it is over, in some cases careful review can reduce the adjusted income to help them qualify. Other times, they may have to pursue a different form of bankruptcy, like Chapter 13.
What are the median incomes for the Maryland means test?
If you are a single person with no dependents or a married person with no children filing without your spouse, your maximum adjusted income is $70,789 if you hope to qualify for Chapter 7 bankruptcy. For couples filing jointly or for individuals with one dependent, that maximum adjusted income goes up to $90,424. It is $106,282 for families with three people and $128,272 for families with four people.
People who pass the means test will want to review their financial circumstances carefully to determine if a Chapter 7 filing is the best option for their situation.
