Chapter 7 bankruptcy informationThe question we hear the most from our clients is always “Am I eligible for Chapter 7 bankruptcy?”

For Chapter 7 bankruptcy, the answer is usually fairly easy to determine. The bankruptcy “means test” is used to determine whether your income is low enough for you to file Chapter 7 bankruptcy. It’s a simple formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. If your income level is too high, you won’t be allowed to wipe out your debts with Chapter 7, but you’ll be able to use Chapter 13 bankruptcy to repay a portion of your debts.

Don’t be discouraged though – you don’t have to be penniless or even have a low level of income to qualify through the Chapter 7 means test. If you have a lot of expenses, such as a high mortgage payment, you can have a significant monthly income and still qualify for Chapter 7 bankruptcy.

The Chapter 7 Means Test

The Chapter 7 means test was created to limit the use of Chapter 7 bankruptcy to individuals who truly can’t pay their debts. Certain monthly expenses are deducted from your current monthly income, which is your average income over the six calendar months before you file for bankruptcy. The resulting number is your monthly “disposable income.” The higher your calculated disposable income, the more likely it is that you won’t be allowed to use Chapter 7 bankruptcy.

You’ll only need to take the means test if your debts are primarily on the consumer side (not business debts). If you’d like to take the means test, you have to start by determining whether your income is more or less than the median income in your state. If you earn more than the state median income, you must figure out whether you would have enough income left over, after subtracting specific expenses, to repay some of your debt.

The State Median Income – Is Your Income Less?

If your current monthly income is less than the state median income for a household of your size, you pass. Period. It’s that easy – you do not need to complete the rest of the means test. You are eligible to file for Chapter 7 bankruptcy.

Disposable Income – Do You Have Enough To Repay Some Debts?

If your household income is higher than the state median, the means test computations get significantly more complex. You must determine whether you have enough”disposable income” left over to pay off at least a portion of your unsecured debts after paying your allowed monthly expenses. If your disposable income adds up to more than a certain amount, you fail the means test and cannot file for Chapter 7 bankruptcy.

Median income levels vary by state and household size, and each county and metropolitan region has different allowed amounts for categories of expenses: basic necessities, housing, and transportation. But don’t worry: You can get through the math with the help of an online calculator.

Chapter 7 Means Test Calculations

If you’d like to check your income against the means test, call Rubin & Associates at (214) 760-7777 for a free confidential consultation.

Remember – just because you pass the means test does not necessarily mean you should file for Chapter 7 bankruptcy. Any decision to file for Chapter 7 bankruptcy should be made only after consulting with an experienced bankruptcy attorney.

If You Don’t Pass the Means Test

If you don’t pass the Chapter 7 bankruptcy means test, you still have the option of Chapter 13 bankruptcy. With Chapter 13, instead of wiping your debts completely, you to make monthly payments over a three- to five-year period, according to a strict budget monitored by the court. Generally, people who file for bankruptcy prefer Chapter 7, since no repayment is required. However, Chapter 13 bankruptcy can be a better solution for specific types of problems, like curing a default on a mortgage.

Talk To A Professional

The most important step in the bankruptcy process is the first step – talking to an experienced bankruptcy attorney. Call us today for a free, no obligation consultation, and we’ll explain all of your options so that you fully understand all of the details of Chapter 7 bankruptcy.

We treat our clients like they deserve to be treated – as people, not numbers.