If you wish to file for liquidation bankruptcy as an Indiana consumer, you will have to take a means test. The test seeks to determine whether you have sufficient income to pay your debts over a period of three to five years as opposed to having them eliminated in a matter of months. In the event that you don’t qualify for Chapter 7 protection, the means test will determine how many payments you’ll make in a Chapter 13 proceeding.
The variables involved
The means test takes into account a number of variables such as your income, family size and the type of debt that you have. If your debts are related to a business, it’s unlikely that you will have to take the test. If your income is below the median in the state for the six months before you sought Chapter 7 protection, you will pass the test.
Allowable expenses
If your income is above the median in the state for the previous six months, you may still qualify for a liquidation bankruptcy. This is because the law allows you to deduct certain expenses from your income such as groceries, housing payments or medical costs. You can check with the IRS or state authorities to get a fuller list of expenses that might be used to offset your income.
If you fail the test
Failing the means test doesn’t necessarily mean that you’ll have to file for Chapter 13 bankruptcy. Instead, it may be possible to pass the test by waiting until income from a previous job or other sources is too old to count against you.
Filing for bankruptcy may allow you to reduce or eliminate credit card, auto loan and other debts in a timely manner. Depending on the circumstances of your case, you may obtain debt relief without losing assets such as a retirement account or equity in your home. You will also be granted an automatic stay of creditor collection activities while your case is ongoing. This may provide the leverage needed to avoid a foreclosure or wage garnishment.