Before you file for Chapter 7 bankruptcy, you should first determine whether you will qualify by using the means test. People often think of passing a test as a huge obstacle to achieving their goals. However, a bankruptcy means test is unlikely to prevent you from filing for Chapter 7 bankruptcy if you need the advantages that come with this form of bankruptcy. You may be at greater risk of not qualifying for Chapter 7 bankruptcy because you were not thorough enough in documenting your income and expenses. An experienced bankruptcy attorney will conduct the means test for you and tell you whether the results suggest that you will qualify for Chapter 7 bankruptcy.
Meaning of the Test
The means test was created to prevent people from using Chapter 7 bankruptcy when they have sufficient disposable income, based on certain allowable expenses, to make a meaningful payment on their unsecured debts. Chapter 7 bankruptcy is advantageous in some situations because:
- Many of the filer's debts are discharged;
- The filer can protect assets from liquidation; and
- The process is quicker than a Chapter 13 bankruptcy repayment plan.
Many people use Chapter 7 bankruptcy because they would not be able to clear their debts through a repayment plan. However, some people try to take advantage Chapter 7 bankruptcy to avoid fully repaying their debts. The means test is designed to identify those who are capable of repaying their debts without Chapter 7 bankruptcy.
Exempt from the Test
Some people can qualify for Chapter 7 bankruptcy without taking the means test. You are presumed to qualify if your median household income for the past six months is less than the state median income for a household with the same number of people. You may also be exempt from the test if:
- Most of your debt comes from your business; or
- You are a disabled veteran who incurred most of your debt while on active duty.
If your median household income is greater than the state median, you can still qualify for Chapter 7 bankruptcy through the means test. The test will add up your monthly income and subtract certain allowable monthly expenditures to determine your disposable income. If you have sufficient disposable income to use towards a Chapter 13 bankruptcy plan, you may not qualify for Chapter 7 bankruptcy. Even after failing the means test, you can attempt to file Chapter 7 bankruptcy and cite special circumstances, such as recent unemployment or a serious medical condition.
Leave It to the Professionals
Conducting a Chapter 7 bankruptcy means test is too complex to risk making a mistake by trying to do it on your own. There are income deductions and less-obvious expenses that can make a difference in whether you pass the test. A Frisco, Texas, bankruptcy attorney at The Page Law Firm will use the means test to determine whether you will qualify for Chapter 7 bankruptcy. To schedule a free consultation, call 214-618-2101.