When Colorado residents are struggling with debt, it is essential to find effective options for getting rid of the debt and starting from scratch with financial matters. One of the most effective means of eliminating debt is bankruptcy, which can allow a person to discharge their debt and achieve a fresh financial start.
Yet, even after a person makes the decision to file for bankruptcy, there are several considerations that must be taken into account. One of the first decisions is to choose between Chapter 7 bankruptcy and Chapter 13 bankruptcy, as each of these options provides different ways of discharging debt.
There are also differences in filing for Chapter 7 that should be taken into account. Most notably, a person who files for Chapter 7 must fill out certain forms in order to qualify.
Through filling out a Form 22A or 22C, individuals will enter their monthly income and expense information. Accordingly, individuals must have available their current monthly income, which may include income the person receives from a wide variety of sources. Individuals also need to have information that may need to be obtained from other sources, such as the Internal Revenue Service. Once this information is entered, certain calculations will be made based on the income and expenses.
This process is known as means testing, which compares a person's income with the State's median incomes to determine if the person qualifies for Chapter 7 bankruptcy. The individual's income must be below a certain level in order to qualify for Chapter 7, and the means test will determine whether he or she qualifies. If not, the person may need to file for Chapter 13, as it may be possible based upon current income levels to pay off the debt through a repayment plan.
Source: United States Department of Justice, "Means testing," accessed on Aug. 29, 2014