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What is the Chapter 7 “means test”?

money on envelope

The bankruptcy “means test” determines whether your income is low enough to file for Chapter 7 bankruptcy – and discharge some, if not all, of your debts. Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy requires you to pay back most of your debts via a consolidated repayment plan. The “means test” is designed to prevent high wage earners from filing Chapter 7 and skirting around paying back the debts which they could pay back. Despite the intent of the Chapter 7 “means test”, you can still earn significant monthly income and still qualify for Chapter 7 bankruptcy. Especially if you have a lot of expenses such as a high mortgage, car loan payments, taxes, and other expenses.

The “means test” determines whether you qualify for Chapter 7 by deducting specific monthly expenses from your “current monthly income” (your average monthly income from the previous six calendar months before you file bankruptcy) to arrive at your monthly “disposable income”. The first step in the “means test” is to determine whether or not your income is more or less than the median income of your state.

If you earn over the median income, you must determine whether you would have some income leftover, over the median income, after subtracting certain expenses, to repay some of your debt. If your income is less than the median income of your state for your household size then you likely qualify for Chapter 7 but there are some caveats. Regardless, the attorneys at Cantafio & Song PLLC can assist you in crafting the perfect bankruptcy plan for you. We are experienced in helping clients navigate the myriad of exceptions and exemptions which may allow you to satisfy the “means test”.