"When you go to file, there's two types of consumer bankruptcy. There's Chapter 7 and Chapter 13. Chapter 7 is the clean slate where the student loans are not bankruptable, but the credit cards get zero."
"In order to file a Chapter 7, you have to pass what they call a means test, meaning they look at your income and any assets that you have."
"Margie's $87,000 annual income clears the median threshold in most states, and her $50,000 in anticipated home equity counts as an asset the court can see."
"Chapter 13 would put her on a court-supervised repayment plan for 60 months. The credit cards would not be wiped."
Margie, facing a divorce and $609,000 in debt, inquired about bankruptcy options. With an annual income of $87,000 and $50,000 from a home sale, she does not qualify for Chapter 7 bankruptcy due to the means test. This test evaluates income against state median levels and disposable income for debt repayment. Consequently, Margie will likely enter a Chapter 13 repayment plan, requiring her to pay back a portion of her unsecured debt over five years.
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