For years the bankruptcy laws have been in place to protect people in Chandler, AZ and other cities all around the country to recover from financial difficulties. If you live in Arizona, or any other state, and are facing significant financial problems to the point where you cannot pay your debts each month, filing for bankruptcy can be an option to help you receive protection from creditors and help in getting your financial situation back under control. There are a few different types of personal bankruptcy that most people use.

Chapter 7 & Chapter 13 Bankruptcy

The two most popular types of personal bankruptcy are Chapter 7 and Chapter 13. Each of these types of bankruptcy has its own requirements and limitations. Chapter 7 bankruptcy, which is also known as “liquidation” or “total” bankruptcy, can instantly wipe away a person’s personal debt. Chapter 13 bankruptcy, involves setting up a court-approved repayment schedule that allows people to have an easier way to get current on their loans and debts. Both of these types of bankruptcy offer protection to people from their creditors.

As you can imagine, Chapter 7 bankruptcy is highly sought after by people who are in financial difficulties. The idea of totally eliminating debt can be very appealing to people. Since this type of bankruptcy interests so many people, there have been people that have sought to use a Chapter 7 bankruptcy to get rid of their debt, even though they have considerably higher incomes. As a result of some people misusing Chapter 7, new laws and requirements were put in place called the “means test”.

The goal of the means test is to keep people who are able to repay their debts from using a Chapter 7 to get out of financial straits. Too many people misusing this type of bankruptcy has made it more difficult for the people who really need it to acquire a Chapter 7 bankruptcy. Thus the means test has been introduced in Chandler, Arizona and all across the country to help keep the system in check.

Meeting the Requirements of the Means Test

You don’t have to be under the poverty level or absolutely penniless to pass the means test. A simple formula is used in conjunction with a person’s income level. The bankruptcy courts will calculate your income for the previous six months and deduct all of your bills. The money that is left over is considered “disposable income.” People with very high levels of disposable income in relation to their income level will not be eligible for Chapter 7 bankruptcy. These people will instead have to use a Chapter 13 bankruptcy plan to help out during their financial rebuilding process.

When it comes to government laws and systems, there is always a series of checks and balances. While the means test may mean that most people may have to go through a little more red tape to get a Chapter 7 bankruptcy filed, in all likelihood, it will not stop most people who legitimately need a Chapter 7 from acquiring one.