When you apply for bankruptcy protection, there will naturally be questions about how well you might be able to pay down your debts. There are two standards applied when evaluating petitions: a "best effort" and a means test. Let's take a look at what each one is and how they might impact your case.
Applicable in Chapter 13 filings, the "best effort" standard applies when people are attempting to restructure their debt payments. Under this standard, you must make a best effort to focus all of your available disposable income on making payments under a plan that you will submit to the court. Disposable income, for legal purposes, covers whatever earned money you have left after paying your living expenses and outstanding debts.
Notably, the best effort standard can only be applied to non-secured debts. This covers things like credit card debts and personal loans. Secured debts (those that are tied to assets) remain tied to those assets regardless of what your bankruptcy payment plan says.
This standard is usually applied in Chapter 7 cases. These are the ones where folks are seeking to have all their debts discharged. In exchange for discharging their debts, filers offer up most of their non-essential assets to be liquidated.
Filing for Chapter 7 is considered one of the most drastic options bankruptcy attorney services firms can discuss with their clients. For that reason, the courts generally want to see significant evidence that a filer has no better options available. That means presenting evidence of the filer's financial circumstances, showing that they don't have the means to continue to pay.
It's worth noting, too, that a means test may be requested in a Chapter 13 filing. This might occur if the court has doubts about whether a person can maintain a payment plan. If the court feels that a Chapter 7 filing is inevitable, they may encourage a Chapter 13 filer to pursue liquidation rather than restructuring.
Preparing to Meet the Standards
The biggest thing you can do before you file a petition for relief is to get all your documents in order. That entails collecting at least a few months' worth of bills and the last two years' worth of tax filings at minimum. You may also want to collect any recent pay stubs you have, especially if your income is prone to fluctuations. Letters regarding things like layoffs should be included, too.
To learn more about these tests, contact bankruptcy attorney services.