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Reviewing the Chapter 7 means test

For many of those that we here at The Berger Firm have assisted in the past, mounting debts have left them with seemingly little hope to get back on top of their finances again. If that describes your personal situation, bankruptcy may offer a way back to fiscal stability. Specifically through a Chapter 7 case, you might be able to have many of your debts discharged. Others may be repaid through liquidating some of your property, yet exemptions typically allow you to hang on to important assets such as your home, car and other valuables. 

Yet not everyone qualifies for this form of personal bankruptcy. To prevent abusing the benefit of bankruptcy protection, federal lawmakers have established what is known as "the Chapter 7 means test." Essentially, this test checks to see if, after comparing your income to your liabilities, discharging debts truly is the only for you to get a hold of your financial situation again. 

The means tests is conducted by looking at your average monthly disposable income over the previous six months. If that amount is lower than the median amount for your particular demographic in your state, then you qualify. If it is higher, then a determination is made based off your aggregate monthly income over the previous five years (minus certain allowable expenses such as your mortgage and utility payments). According to the website for the Federal Judiciary, if that amount is greater than $12,850 or 25 percent of your nonpriority unsecured debts (provided those debts are in excess of $7,700), then you do not qualify. 

All is not lost, however, if you do not pass the means test. Your case may simply be converted over to a Chapter 13 wage-earner bankruptcy. More information on bankruptcy qualification standards can be found here on our site. 

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