Chapter 7 Means Test
What Is the Chapter 7 Bankruptcy Means Test?
Chapter 7 bankruptcy is designed to give consumers a fresh start from unsecured debts like credit cards, medical bills, payday loans and much more by discharging those debts.
In order to file Chapter 7, one must pass the "means test", which was created to preserve Chapter 7 for those who truly need it. The good news is that most people who seek Chapter 7 protection qualify under the means test.
Is Chapter 7 the right option for you? Learn about the requirements of the means test and the benefits of bankruptcy by talking with an attorney. Use the case review form below to connect with a local lawyer for a free, no-obligation consultation today.
The Reason for Bankruptcy Means Test in Chapter 7
As Chapter 7 bankruptcy provides a complete discharge from most unsecured debts, lawmakers wanted to make sure that Chapter 7 bankruptcy is only used by those people who cannot pay off these debts.
The 2005 bankruptcy law (the Bankruptcy Abuse Prevention and Consumer Protection Act) instituted a means test to make sure that people weren’t using Chapter 7 bankruptcy as a "get-out-of-jail-free" card.
The reasons behind the origins of the Chapter 7 means test were debatable to many. Many credit card lobbyists and some politicians painted a picture of people abusing the system, recklessly racking up bills and filing bankruptcy to escape from their debt. The means test was touted as a way to withhold a discharge for those who could manage to repay their debts if they wanted.
Why the Chapter 7 Means Test Matters
In short, if you are interested in filing Chapter 7 bankruptcy, you will first have to take the Chapter 7 means test to determine if you are even eligible to file for this form of bankruptcy.
The means test is a preliminary step that determines if Chapter 7 is really the best option for you.
What Makes up the Chapter 7 Means Test?
The Chapter 7 means test is simply an assessment of income and living expenses.
The means test is made up of two parts:
- A comparison of your income with the median income in your state for a family of the same size as yours; and
- A calculation of your disposable income and unsecured debts.
If your income is below the median, or if you don't have enough disposable income each month to pay a significant portion of your unsecured debt, you're likely eligible to file Chapter 7.
If you are interested in filing Chapter 7 bankruptcy, your bankruptcy lawyer will walk you through the means test and help you determine whether you may file this form of personal bankruptcy.
The First Step in the Chapter 7 Means Test - Your Income
During the first part of the means test, your Chapter 7 bankruptcy lawyer will compare your income with the median income in your state for the family that is the same size as yours.
- If your income is at or below the median income level in your state, you pass the means test, meaning that you are eligible to file Chapter 7 bankruptcy.
- If your income is above the median income level in your state, the second part of the means test is used to determine your disposable income.
Click here to see the current median incomes for bankruptcy
The Second Step in the Means Test - Your Expenses
If it is determined in the first step of the Chapter 7 means test that your income is greater than the median income in your state, you will need to move to the next step to determine your Chapter 7 eligibility.
The second part of the Chapter 7 means test calculates your disposable income (the amount of money that you have at the end of the month after paying your necessary expenses) and compares that with your unsecured debts.
If your disposable income leaves you with insufficient funds to repay unsecured creditors in a Chapter 13 plan, you'll typically be eligible to file Chapter 7 and have passed the means test.
Click here to learn how disposable income is calculated
Sort Out the Means Test with a Chapter 7 Bankruptcy Lawyer
On the surface, the Chapter 7 means test may seem like an intimidating maze; remember that it doesn’t have to be, especially when you enlist the help of a local bankruptcy lawyer.
Getting in contact with a nearby bankruptcy lawyer is a great way to sort through the clutter of the means test and get the information most relevant to you: whether you are or are not eligible for Chapter 7 bankruptcy.
Your bankruptcy lawyer can complete the means test for you and come up with an answer to this question of your Chapter 7 eligibility.
Simply fill out the below free bankruptcy case evaluation form and to connect with a local Chapter 7 bankruptcy lawyer for a no-obligation consultation.
The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.