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Chapter 7 Means Test

The bankruptcy “means test” is used to assess whether you are eligible for chapter 7 bankruptcy. It’s a test written to ensure that those with sufficient income to pay their creditors, pay at least a reasonable portion of their disposable income to their debts. Those unable to pass the means test are permitted to file Chapter 13 bankruptcy, but are not permitted to use Chapter 7 bankruptcy to discharge their debt without making payments to their creditors.  Nonetheless, you can make substantial monthly income and still be eligible for Chapter 7 bankruptcy if you incur a lot of expenses, such as large mortgage and vehicle payments, taxes, and other expenses.   However, not everyone is subject to the means test, e.g. those whose debts are primarily non-consumer debts, but most people will need to pass the means test in order to receive a chapter 7 discharge.   To speak with an attorney about whether you are eligible for chapter 7, contact us now.  To learn more about the chapter 7 bankruptcy means test, read on.

How Does the Chapter 7 Means Test Work?

The means test is intended to ensure that only those unable to pay their debts enjoy the benefits of Chapter 7 bankruptcy.   Generally speaking, the means test first determines your annual income by annualizing your last six months of income.  If your annual income is higher than the median income,  or a household of your size in your state, you will pass the means test.   You do not need to complete the rest of the means test and you are eligible for relief under chapter 7.

However, if you earn more than the median income for your state, you must figure out whether you would have enough left over, after subtracting certain required and discretionary expenses, to repay some of your debt.  Each county and metropolitan region has different allowed amounts for categories of expenses: basic necessities, housing, and transportation, but you can get an answer on whether you will pass the means test by contacting the Callan Law Firm, P.C. now.

If you are unable to pass the means test, Chapter 13 might be the best solution for you.  Click here to learn more about chapter 13.