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How do I Know if I Can Still File for Chapter 7 Bankruptcy?

Posted by attorney Michael Sices

To determine whether a Chapter 7 bankruptcy is abusive, Courts will use what is called a Means Test Formula, which has two important terms to define:

  • Currently Monthly Income (CMI) - How much money you make per month through income sources (excluding Social Security benefits and a few other exceptions) during the six (6) months prior to the month that your bankruptcy petition is filed; and,
  • Median Family Income (MFI) - The median (middle) income for families of your size in your particular state.

After we know what your CMI and MFI will be, the following two tests determine whether it will be possible for you to file for Chapter 7 Bankruptcy. (**Note, just because you can file, does not always mean it is a good idea! Talk to a bankruptcy attorney in your area for advice about when and how to achieve your particular goals).

Step 1

If your Current Monthly Income ("CMI") is less than the Median Family Income ("MFI") for a household of your size in the State where you reside (based on the most recent U.S. census data), there is no presumption of abuse and you can file under chapter 7. However, there are instances in which the way your income is calculated may not be in your favor. As an example, if you file in November, your CMI is your average monthly income received from May thru October of that year. Consequently, you can be unemployed at the time of a bankruptcy filing and still have CMI. In fact, it is conceivable that an unemployed person who recently lost a high paying job could have CMI in excess of the applicable MFI, and therefore have a presumption of abuse. A competent attorney should be able to avoid this somewhat absurd result by timing the filing of your petition.

Step 2

Most people who "fail" under step 1 still qualify under step 2. Under this analysis, we take your CMI and deduct all of the allowed expenses provided by the IRS cost of living standards and then deduct all of your payments on secured debt. If after taking all of these allowable deductions, your disposable income (CMI - allowed expenses; or your monthly amount available to pay unsecured creditors) is less than $109.58 per month, or $6,575.00 over 60 months ($109.58 times 60 equals $6575.00), no presumption of abuse arises in your Chapter 7 case. If your disposable income is above $182.50 per month, or $10,950 over 60 months ($182.50 times 60 equals $10,950.00), a presumption of abuse would arise in your Chapter 7 case, and would likely result in your case being dismissed. If your disposable income is between $109.58 and $182.50 per month there is a presumption of abuse only if that monthly amount, when multiplied by 60, is enough to repay at least 25% of your nonpriority unsecured debt over 5 years.

Additional Resources

Law Offices of Michael R. Sices, PC, a Debt Relief Agency helping people find relief by filing bankruptcy in Texas under the Bankruptcy Code. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a Dallas bankruptcy attorney for individual advice regarding your own situation.

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