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Do Not Let Your Income Discourage You From Chapter 7 BankruptcyFiling for Chapter 7 bankruptcy may be your preferred option, depending on your debts and assets. The Chapter 7 process is quicker than a multiyear repayment plan and still allows you to protect many of your important assets. Some bankruptcy filers are discouraged from attempting Chapter 7 bankruptcy because of the Chapter 7 bankruptcy means test. A test sounds like an obstacle that is meant to prevent people from using Chapter 7 bankruptcy unless they have a below average income. However, that is not how the test works. Here are four facts about the means test that you should understand:

  1. Many Filers Do Not Take the Test: The means test is required only if you have a median household income that is at or above your state’s median income. Anyone with an income below the state median does not have to take the test to qualify a for Chapter 7 bankruptcy. 
  2. Many People Pass the Means Test: The Chapter 7 bankruptcy means test was created to determine whether someone has enough disposable income to afford a Chapter 13 bankruptcy repayment plan. Bankruptcy law assumes that people below the state median income cannot afford it, but people at or above the median may be unable to afford it as well. Your disposable income is the money left over from your income after necessary expenditures. You will pass the test as long as your disposable income is too low for you to reasonably sustain a meaningful repayment plan.
  3. Identifying Expenses Helps: When calculating your disposable income, it is important to list all of your financial obligations that take away from your regular earnings. These could include taxes, healthcare, insurance, childcare, court-ordered payments, and secured debt payments. These expenses help reduce your disposable income and can help you qualify for Chapter 7.
  4. When You Take the Test Can Make a Difference: The means test calculates your median income based on your income for the past six months. 

You can fail the test and still qualify for a Chapter 7 bankruptcy.  There is a process called rebutting the presumption.  This is why you need to consult with an experienced attorney.

Contact a Frisco, Texas, Bankruptcy Attorney

You should not dismiss Chapter 7 bankruptcy as an option without first consulting a knowledgeable attorney. A Denton County bankruptcy lawyer at The Page Law Firm can evaluate your financial situation and tell you which type of bankruptcy will work best for you. Schedule a free consultation by calling 214-618-2101.

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Passing the Chapter 7 Bankruptcy Means TestBefore 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:

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National Association of Consumer Bancruptcy Attorneys State Bar of Texas
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