Means Test Standards for Your State and County
Filing for Chapter 7 or Chapter 13 bankruptcy can be a life saver, but don’t rush into it before considering whether it’s the best solution for you. Under some circumstances, even if you’re facing a mountain of unpayable debts, bankruptcy may not be your best option.
When You Might Not Need (or Want) to File for Bankruptcy
If You're Judgment Proof
It you’re truly broke, you may be what the law calls “judgment proof.” This simply means that creditors can’t grab your property or your salary because there’s nothing the law allows them to take.
Select your state from the list on this page to learn what property you can protect. But keep in mind that exemption laws don’t shield property from all types of debts or all types of creditors. For instance, exemption laws typically won’t protect your property if you owe child support or back taxes. And if you bought property and pledged it as collateral—common for car loans and mortgages—the lender can take the property regardless of any exemption law.
If you’re judgment proof, instead of filing for bankruptcy, your best option may be to ride out the hard times and do nothing for now.
If Your Creditors Are Willing to Negotiate Payment Plans or Settle Your Debts
Your creditors may be willing to set up reasonable payment plans or even to settle your debts for less than you owe. For obvious reasons, this can be a stressful process—but you may be able to get help from a nonprofit credit counselor or debt management agency. You can find a list of qualified agencies on the website of the United States Department of Justice. (The Justice Department keeps this list because everyone who files for bankruptcy is required to complete a credit counseling course with an approved provider.)
One drawback to this approach is that you won’t receive the many protections provided by filing for Chapter 7 or Chapter 13 bankruptcy. Bankruptcy can cancel your debts outright and keep creditors off your back for good, but if you fall behind on a plan you’ve negotiated outside of bankruptcy, the cycle of fending off creditors may start right up again.
If Bankruptcy Can't Cancel Your Debts
There are some kinds of debts that bankruptcy simply can’t erase. These are called "nondischargeable" debts. This generally includes child support, most student loans, and most tax debts.
If It's Just Not the Right Time
Chapter 7 bankruptcy is the neutron bomb of debt management and asset protection. A Chapter 7 bankruptcy is usually quick—it usually takes just three to six months—and quite complete when it comes to wiping out unsecured debt like credit card and medical debts. You can use Chapter 7 bankruptcy only once every eight years, so you may want to save it for when you really need it. For example, if you don’t have any assets to protect, bankruptcy may be stronger tool than you need. On the other hand, if you’re facing outside pressure like a wage garnishment, it could be the right time to file.
The vast majority of people who end up filing for bankruptcy really do need it.
Who Files for Bankruptcy?
The typical bankruptcy filer is a person already in fragile economic circumstances, often with large amounts of credit card debt, who then suddenly gets hit by hard luck—like job loss, injury, divorce, or uninsured medical expenses—leading to unmanageable payments and insurmountable penalties.
Bankruptcy is designed to help people like this, who need help making a clean break—to get a fresh start on life, rather than struggling under the crushing burden of unpayable debt.
Making the Decision: Should You File for Bankruptcy?
Deciding whether to file for bankruptcy or choose other alternatives is never as easy as reading through a list of options. It’s best to conduct a thorough review of your income, debts, property, and the alternatives available to you. You may want to pursue this investigation yourself—or you can hire someone to help you.
Bankruptcy Self-Help Resources
For about $30, you can purchase one of Nolo's books: How to File for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time. Either book will walk you through a self-analysis of your situation and explain your options in plain English. These books offer step-by-step discussions of Chapter 7 and Chapter 13 bankruptcy, including exempt property, keeping your home, and how to prepare and file your bankruptcy forms. They also alert you to situations that are particularly troublesome and should not be handled without an attorney.
This website supplements the information in Nolo’s bankruptcy books by providing quick access to bankruptcy services and information for your county.
Getting Professional Help
If you just need help with preparing the forms, you can hire a bankruptcy petition preparer. If you want legal advice and analysis of the details of your specific situation, you can hire a bankruptcy lawyer to advise you. (Again, just select your state to find local resources.) These listings are not endorsements. They are simply designed to help you quickly connect with service providers in your area.
Whether you decide to do it yourself or hire professional help, our goal is to help you become a smarter, better-informed legal consumer and help you steer clear of shoddy services.
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Is My Income Low Enough To Qualify for Chapter 7 Bankruptcy?
Means Test Standards for Your State and County
A mathematical formula—called the means test—determines whether you qualify for Chapter 7 Bankruptcy in your state. The means test first looks to see if your average income for the past six months is below the median income in your state. And if it is, then it looks at whether would have enough "disposable income" to fund a five-year Chapter 13 debt repayment plan—after allowing for monthly expenses for food, housing, clothing, transportation and medical care, based in part on county-by-county expense standards for your county that the IRS uses in their nationwide tax-collections efforts.
How Chapter 7 bankruptcy can help you cancel your debts, protect your exempt property, and stop bill collectors.
You can use Chapter 13 bankruptcy to get out from under the burden of your debts, protect important property, and stop bill collectors.