Chapter 7 Bankruptcy Means Test
To file a Chapter 7 bankruptcy, you must pass the means test. The means test determines whether or not you make enough money to feasibly work on repaying your debts without a Chapter 7. For those that do not qualify, Chapter 13 bankruptcy is usually the best option. The means test takes into account the applicants income, expenses, and where they live (to help determine living costs). Chapter 7 is generally the preferred method of bankruptcy as it does not require repayment, while Chapter 13 does. The means test was introduced to limit Chapter 7 bankruptcies to those that truly could not repay some or all of their debts.
How does the means test work?
The test will first determine your monthly income, which comes from your average monthly income for the six months leading up to filing. If your income is less than the median in your state for a household of similar size, you qualify for a Chapter 7.
If your income is above the state median, the test will decide whether or not you have enough disposable income to pay at least a portion of your debts yourself. It does this by first collecting the figures for what it considers “allowed” monthly expenses (i.e., bills and payments that are deemed necessary). Those are subtracted from your monthly income and the leftover amount is your disposable income. If your disposable income passes a certain threshold, you cannot file for a Chapter 7 bankruptcy.
What if I pass?
If you pass, you can file for Chapter 7 bankruptcy. It’s best not to rush into heavy financial decisions, though. At BCN Law Firm, we recommend sitting down with a knowledgeable Clermont bankruptcy attorney to determine what your best options are and how best to proceed.
If you don’t pass the means test, a Chapter 13 bankruptcy is usually recommended. This would require you to make monthly payments towards your debts for 3-5 years. Both types of bankruptcies have good aspects and pitfalls. It’s important to be well-informed on both before you make any decisions that will substantially affect your financial health.
If you’re considering filing for bankruptcy and would like to learn more about the Chapter 7 means test, please give the lawyers at Boyette, Cummins & Nailos a call today at 855-LAW-2020.