What is the Chapter 7 Means Test?

Whether or not you qualify to file for Chapter 7 bankruptcy comes down to one primary detail: your income.

The means test is in place to help determine if your income is low enough to file. It is also in place to ensure that those who earn a higher income don’t abuse the bankruptcy system.

Note: if you fail the means test and are ineligible to file for Chapter 7, you may want to consider the benefits of Chapter 13.

How does it Work?

Chapter 7 bankruptcy is supposed to be for people who don’t have enough income to pay their debts. The means test helps to calculate if a person is in this position.

In short, the test deducts a particular set of monthly expenses from your monthly income. This calculates a number known as your disposable income. The higher this number the less chance there is that you will qualify for Chapter 7 bankruptcy.

Here is a simple way of looking at things: if your monthly income does not exceed the median household income in your state, you will pass the test with flying colors. There is nothing more you need to do, outside of deciding if you will file.

On the flipside, your income may be greater that the state median. In this case, your situation becomes much more complex, as it is time to decide if you have enough disposable income to pay your unsecured debts.

If it is determined that your disposable income is too high, you are ineligible for Chapter 7 bankruptcy. Your only option at that point is to stay put or consider if Chapter 13 could improve your situation.

Do you have questions about the means test? Are you wondering if you have any chance of qualifying for Chapter 7 bankruptcy? If you are confused and unsure of where to turn, let us guide you. We can explain the means test in greater detail, while also giving you other options for reclaiming control of your finances.