Presumption Of Abuse
Anyone in debt can file for bankruptcy so that their debts can be wiped away. However, to prevent people from abusing this, the Means Test is done to determine whether or not the person is really unable to pay off their debt. If the person is found to have some excess money after cost of living is deducted, then they can qualify for a restructured payment kind of bankruptcy instead.
For people who are seriously in debt and really have no way out, there is still that last ditch effort known as bankruptcy. It may not be the best method but at this point in time, there probably really isn’t anything you can do. Filing for bankruptcy has many laws around it. As a person, your responsibility is your family and the law allows for people to file for bankruptcy so that they can deal with their debt. However, this isn’t a magical stick that instantly cleans your debt so that you can start borrowing again. There are a lot of things you need to consider so you need to do your research well and contact your bankruptcy lawyer so as to get proper legal advice. Since you will be dealing with the law, then you should become familiar with some new terminologies. One such term that you should research on is the idea of Presumption of Abuse.
Two Kinds of Bankruptcy
As stated, filing for bankruptcy isn’t a magical cure all for your debts so that you can begin getting more. It is a means to deal with your debt if you are really in no position to pay for it. However, once it is granted, your debts will all be wiped and you won’t have to pay for them anymore. Unfortunately, a lot of people tend to abuse this by filing for bankruptcy even though they have the means to pay for it. Before talking about presumption of abuse, you must first understand that there are technically two kinds of bankruptcy.
First is the Chapter 7 Bankruptcy wherein all your liquid assets will be accounted for and will be used to pay for your debt and after that, everything that hasn’t been paid for will be waived and you won’t have to pay for it anymore. This is the typical bankruptcy that people know off since this really absolves them from their debt. However, there is another kind of bankruptcy, mainly Chapter 13 Bankruptcy wherein the debt will be restructured. You still get to keep your properties but you will have to pay for your debt in a 5 to 7 year period.
So just what is presumption of abuse? It is there to stop people who have the means to file for a Chapter 13 bankruptcy but file for a Chapter 7 instead. To determine this, the Means Test is done. If the person has no disposable income or income after cost of living, then they are allowed to file for a Chapter 7 since they really have no means to pay for their debt. However, if it is computed that after cost of living, they have money afterwards, then it is determined that there is presumption of abuse since the person has the means to pay for their debts. Their filing for chapter 7 will then be contested so they either have to cancel it or file for a chapter 13 bankruptcy instead.
This particular portion of the law was placed so as to prevent abuse from people who can or have the ability to pay so that the creditors won’t lose too much money from everyone filing for bankruptcy.