Determining Eligibility with the Chapter 7 Bankruptcy Means Test

In order to determine if an individual is eligible, the Chapter 7 bankruptcy means test ensures that the filer’s income is low enough to qualify for this type of bankruptcy and to prevent those with higher incomes from taking advantage of the bankruptcy process.

Some people erroneously believe that they have to be completely broke in order to file Chapter 7 bankruptcy; however, this is not the case. The means test examines one’s income-to-debt ratio to identify those individuals who truly cannot pay their debts. Of particular importance is that these debts must be primarily consumer—not business—ones.

Determine Income Eligibility

The first prong of the test involves determining whether one’s current monthly income is less than the median income for a similarly situated individual. If the individual’s income does not exceed the median, then s/he is automatically eligible to file Chapter 7 bankruptcy.

Disposable Income

Individuals whose household income exceeds the state’s median are not automatically excluded from Chapter 7. The next step is determining the amount of the filer’s disposable income—defined as the leftover income after all allowable monthly expenses are paid—to determine whether the filer can, in fact, repay some debts. However, if the amount exceeds the state’s allowable threshold, then the individual may only file Chapter 13 debt reorganization.

Means Test Online Calculators

There are several free online calculators available to help individuals determine whether they may be eligible for Chapter 7.

Deciding To File Chapter 7

If an individual qualifies under the means test, then s/he is eligible to file; however, this does not automatically mean that s/he should. Thoughtfulness is critical for such a big decision.

Experts recommend that anyone considering filing for bankruptcy consult with a knowledgeable bankruptcy attorney who can answer questions and address concerns. Our experienced attorneys at the Buettner Law Group strive to obtain the best outcomes for our clients. Thus, for more information, or to see if you may qualify for Chapter 7 bankruptcy, please contact us.

Please contact our law office concerning your case. The content of this article does not constitute an attorney-client relationship.