A Chapter 7 bankruptcy means test will determine if your income meets the guidelines for filing chapter 7 bankruptcy. This test is designed to keep higher income filers from filing Chapter 7 bankruptcy to wipe out their debts completely. They may file for Chapter 13 bankruptcy, but this will mean that they need to repay some of their debts, as directed by the trustee. What do you need to understand about the bankruptcy means test and how it will affect your own bankruptcy?
You Don’t Have to Be Penniless to File Chapter 7
When you say, “means test,” most people think that this means that you have to be almost penniless to file Chapter 7 bankruptcy. However, you can earn quite a bit and still qualify for this type of bankruptcy if your expenses are high. This can include a high mortgage, car loan, tax bill, and other expenses.
How Does This Test Work?
This test was not created to keep those who truly need Chapter 7 bankruptcy from being able to file. However, it is designed to limit the use to those who truly need it. The means test will take your average income over the last 6 months and deduct your monthly expenses to come up with a “disposable income” amount. The higher this amount, the least likely that you will be able to file bankruptcy using Chapter 7.
It is important to note that only consumer debts are covered under Chapter 7 bankruptcy. This means that business debts are not covered. By determining whether your income is at or less than the median income, then you automatically qualify. If your income exceeds the state median, then you will have to do the means test to determine if you have enough income left to pay at least part of your unsecured debt.
A median income will vary from state to state, so you want to be sure that you find out the median income in your own state to determine if you are eligible or not.
Using a Chapter 7 Bankruptcy Means Test Calculator
Before you even go to a bankruptcy attorney, you can determine if you qualify for Chapter 7 bankruptcy. There are several online bankruptcy means test calculators online that will allow you to input your own numbers and then determine if you are eligible. If you qualify, then you can decide if you want to file for bankruptcy or you want to just consider it in your options. If you do not qualify, you will be limited to using Chapter 13, which will mandate monthly payments over three to five years that are determined by the court.
By determining whether you qualify under the means test, you can then narrow down your choices to find the bankruptcy type that is right for you and your particular needs. The Chapter 7 bankruptcy means test is your key.