The Bankruptcy Means Test

Qualifying for Chapter 7 Bankruptcy

If you have been looking for a way to discharge your unmanageable debt and move forward with a fresh start, you have likely explored the many benefits of filing for Chapter 7 bankruptcy. Under this chapter of the U.S. Bankruptcy Code, those that qualify will have the opportunity to liquidate non-exempt assets and pay off creditors with the proceeds. From there, most additional debt will be discharged and the individual will no longer be responsible for paying them off. Although obtaining debt-relief is not as simple as snapping your fingers, it is much easier to do so when you explore your legal options. As such, the only catch is that you must qualify to file for Chapter 7 bankruptcy by submitting to, and passing, a "means test." If you are not eligible, however, you may still file under Chapter 13 which would allow you to restructure your debt into more manageable payments, so that you can pay off creditors over a three to five year period of time.

Because filing for Chapter 7 bankruptcy allows individuals to virtually discharge all of their debt overnight, it is important to make sure that the process is reserved for those in a dire financial situation. This means that a debtor should not have any disposable income that they could be contributing to paying back creditors, but rather that they have run out of options. In order to generally understand who is eligible under these circumstances, a means test was developed. By evaluating a debtor's financial situation at a glance, it limits the amount of people that are eligible and reserves this form of debt-relief for those that are truly struggling to manage their expenses. This test takes several factors into consideration, including the comparative size of your house in the state in which you reside, your total monthly income and the amount of disposable income that you are left with each month after paying off necessary expenses. From there, it is ultimately decided whether or not you qualify to file.

Understanding How the Means Test Works

Simply put, a means test utilizes a calculation to determine whether or not you are eligible to file for Chapter 7 bankruptcy. First, your current monthly income will be examined. If it "is less than the median income for a household of your size in your state, you pass," and you do not have to complete the rest of the test. If, however, your income exceeds the state median, other factors will be taken into consideration. Next, your required monthly payments—including credit card bills, costs of living and transportation, etc.—will be subtracted from your total monthly income, and it will be determined how much disposable income you have left over. If it exceeds a designated amount, you will not qualify to file for Chapter 7 This number will vary depending on where you live, as well as the size of your household, however, so it is important to make sure that you take this into consideration when exploring your legal options. To find out if you qualify, use an online means test calculator by clicking here.

Still have questions about Chapter 7 eligibility?

If you still have questions about whether or not you qualify to file under Chapter 7 of the U.S. Bankruptcy Code, 1st California Law prompts you to speak to an experienced Santa Ana attorney at our firm. By calling our office today and taking advantage of a free initial consultation, or by filling out and submitting a free case evaluation form online, you will have the opportunity to consult with a legal professional first-hand about your financial circumstances. When you are struggling to stay on top of day-to day expenses and mounting bills, you should not waste any time in retaining the help that you will need to successfully move past your debt. Contact our office today to get back on the road to financial recovery.