Basically, a bankruptcy ‘means test’ is what determines whether or not you may qualify for Chapter 7 bankruptcy. The means test consists of two-parts, but you only need to pass one of them to qualify. In 2005 when the bankruptcy code was revamped, providing fixed income formulas, it was in an attempt to prevent people with higher monthly incomes from filing. Also, people cannot file for Chapter 7 if they have already received a bankruptcy discharge within the last six to eight years. But don’t think that this new test will prevent you from filing. The truth is that most people considering Chapter 7 bankruptcy will have no trouble passing it.
Test 1. “Median Income”
This is a very simple test that compares your average household income for the past six calendar months to the median income for your state. If your income is below the median, you qualify for Chapter 7. If it is above the median, you must pass Test 2. (See reference)
CENSUS BUREAU MEDIAN FAMILY INCOME BY FAMILY SIZE
Test 2. “Disposable Income”
This test deducts expenses from your income to determine how much you can pay your unsecured creditors over the next five years. Certain deductions are standard allowances based on information such as the number of vehicles you operate, the number of people in your household, and the cost of living in specific WI counties. In addition, you can also deduct some actual expenses such as mortgage and vehicle loan payments.
No need to worry if your income fails the Chapter 7 means test because you’ll still have the option to file a Chapter 13 repayment plan.
Ch.7 Bankruptcy can discharge:
- Credit card debt, including store cards
- Medical bills
- Payday loans
- Personal loans
- Deficient balances on cars/real estate
Have more questions regarding bankruptcy? Your Debt Advisors bankruptcy attorney is familiar with all of the rules and regulations behind the test. If you choose to file Chapter 7, the attorneys can help you navigate through the process to find resolution quickly. In addition, they will be able to answer any other questions that you may have.