Determining whether or not a person can qualify for a Chapter 7 bankruptcy is one of the most complex areas of consumer bankruptcy. The means test is used to determine who can file for Chapter 7 bankruptcy or who must file a Chapter 13. The means test was introduced to the Bankruptcy Code in 2005 and is designed to limit those individuals eligible to file for Chapter 7 bankruptcy. The Chapter 7 bankruptcy means test compares your current monthly income against the median income for households similar in size to those in your same state. The means test looks at the average household income over the six months prior to filing. If your income is below that of the average household income for your state then you will automatically qualify for a Chapter 7 bankruptcy.
Now if your household income exceeds the median income for households of a similar size in your state you still may be able to qualify for a Chapter 7. This is because certain expenses are deducted from your current monthly income in order to determine your net monthly income. Now not all expenses are qualifying expenses, however, the following kinds of costs can be deducted: child support, alimony, tax withholding costs, health savings account, garnishments, certain utilities and several other types of expenses.
However, if you still do not qualify for a Chapter 7 even after deducting the qualified expenses you can still file bankruptcy. For most people who do not qualify for Chapter 7 bankruptcy because of their high income file Chapter 13 bankruptcy. Chapter 13 bankruptcy is a reorganization of your debts. The bankruptcy last for 3 to 5 years during which time you make payments to your creditors. At the end of the bankruptcy whatever balances are left over will be discharged.
The means test is one of the most complex areas of consumer bankruptcy so please speak with one of our bankruptcy attorneys to look at your individual situation. Don’t subject yourself to a Chapter 13 bankruptcy until you know for certain that you do not qualify for a Chapter 7.