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  • Exceptions to the Chapter 7 Means Test Requirement

    Before filing for Chapter 7 bankruptcy, debtors must pass the means test—an intricate means test calculation considering their income, deductions, household size, and more. Debtors’ monthly disposable income must fall below the median income in their state. Furthermore, certain forms of income, such as Social Security retirement payments and tax refunds, are disallowed under law. Other than this, there are some expectations of the Chapter 7 means test requirements.

    How Do I Know if I Qualify?

    The first step to filing Chapter 7 bankruptcy (sometimes known as liquidation or straight bankruptcy) is passing the means test. A court reviews your financial records to ascertain that your disposable income falls below the median family income in your state.

    The means test calculates your average monthly income over six months before your filing date and subtracts allowable expenses, such as:


    Your disposable income should be low enough that it enables you to repay unsecured debts within five years or less.

    Sometimes, there may be assets the trustee can’t sell (nonexempt property). When filing bankruptcy, you list this nonexempt property on one form and its value on another. When selling this nonexempt property to creditors, proceeds go toward repaying them, but you can keep some exemption amounts according to state or federal law.

    Do I Qualify For Chapter 7 Bankruptcy?

    The Means Test

    The means test ensures that Chapter 7 bankruptcy offers equal opportunity for debt relief. It compares your current monthly income with the median household income in your state for similar households of similar size; if it falls below this median amount, you pass the first level of testing without needing to fill out and submit any of the other two forms.

    The second stage of the means test takes into account expenses. The court subtracts statutorily allowed expenses from your income to calculate disposable income; if it falls below a certain threshold, Chapter 7 bankruptcy could still apply in your situation.

    If your disposable income is too high, Chapter 7 bankruptcy won’t work for you; instead, explore alternatives such as Chapter 13 bankruptcy, which allows for debt restructures over three—to five-year repayment plans.

    The Means Test & Legal Eligibility

    Requirements for Filing

    The means test is a complex mathematical formula designed to assess whether you have sufficient disposable income after paying bills and other statutorily allowed expenses to cover at least some of your unsecured debt.

    If you pass this test, filing Chapter 7 bankruptcy would be possible, while failing would necessitate filing Chapter 13 bankruptcy instead. Be sure to find a qualified bankruptcy lawyer when filing bankruptcy since any missing or incomplete forms could result in your case being dismissed or not receiving complete debt relief.

    The Pope Firm can also ensure you qualify for Chapter 7. According to recent data from the U.S. Bankruptcy Court, attorney-represented filers received discharge (debt forgiveness) in 94.1 percent of their cases compared with 55.6% for self-represented filers.

    Discharge of Debts

    To qualify for Chapter 7, a means test that examines your financial records must be passed to assess if your household income falls above or below your state median after subtracting specific expenses from gross income.

    If there isn’t enough disposable income left over to pay back some portion of unsecured debts, then this test has been successfully passed, and you qualify for Chapter 7. The bankruptcy system is intended to help individuals start over by discharging some debts and relieving some property-related strain.

    Unfortunately, filing for bankruptcy may cause you to lose property, such as your home and car, in the form of seizure and repossession; therefore, you must understand its consequences before filing with an experienced attorney. In addition, dishonest practices relating to your bankruptcy case, such as hiding or destroying items, may void some previous rights.

    Who Is Exempt From Taking the Bankruptcy Means Test?

    The bankruptcy means test is an intricate calculation designed to establish whether or not you have extra income available to pay creditors in bankruptcy proceedings. There are exceptions, though.

    The Bankruptcy Means Test

    Sole Proprietors

    Sole proprietorships don’t typically take the means test. This is because, unlike corporations and partnerships, sole proprietorships don’t operate under a legal entity separate from their owner/operator – making the owner personally liable for business bankruptcy incurred by his/her sole proprietorship and potentially seizing personal assets to collect payment owed from creditors.

    Though most business owners cannot file Chapter 7 bankruptcy, they still have options for managing and eliminating debt. One such approach is Chapter 13 bankruptcy, which allows businesses to continue operations while paying creditors over three to five years.

    When determining eligibility for Chapter 13, the bankruptcy court compares an individual’s income against that of their state’s median income, then subtracts allowed monthly expenses from this income to calculate whether there is enough disposable income available to repay some or all debts.
    Because this process can be complex and time-consuming, it’s wiser to seek assistance from an experienced bankruptcy law firm like The Pope Firm when devising a repayment plan.

    Military Members

    Many military members seeking bankruptcy protection face financial strain, making repaying debts more challenging. However, under the federal Servicemembers Civil Relief Act (SCRA), specific military personnel can protect themselves from debt collectors while discharging particular consumer debt without passing a bankruptcy means test.

    Debtors must compare their disposable income against actual expenses to pass such tests. National Guard and Reserve members who are called up for at least 90 days of active duty and file Chapter 7 bankruptcy within 540 days after leaving active duty may also be exempted from the bankruptcy means test.

    However, this exemption only applies if their debts were accrued while performing homeland defense activity or while on active duty.

    Chapter 7 Bankruptcy Means Test


    While the means test is crucial in determining eligibility for Chapter 7 bankruptcy, notable exceptions exist. An attorney can help in the process, maximize debt relief opportunities, and ensure compliance with all legal requirements, thereby increasing the likelihood of a successful discharge.

    Buried in Debt? Contact The Pope Firm Now!

    The Pope Firm offers comprehensive bankruptcy solutions tailored to your needs, including Chapter 7, Chapter 11, and Chapter 13 bankruptcy services. Whether you’re looking to declare bankruptcy in Tennessee or determine if you qualify, our team will guide you every step of the way. Don’t let financial stress control your life. Contact The Pope Firm today.

    If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.

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    Frequently Asked Questions

    Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.

    There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.

    Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.

    Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.

    Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.

    There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.

    What are the Differences Between Chapter 7 and Chapter 13?

    The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.

    Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.

    What Other Types of Bankruptcy Are There?

    Two other types of bankruptcy are Chapter 11 and Chapter 12.

    Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.

    Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.

    A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.

    Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.

    Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.

    How bankruptcy affects business depends upon the type of bankruptcy filed.

    Chapter 11

    Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.

    During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.

    Chapter 7

    Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.

    Chapter 13

    Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.

    When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.

    • Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
    • Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
    • Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
    • Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
    • Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.

    Declaring bankruptcy wipes out many debts, but not all.

    What Debts are Usually Covered by Bankruptcy?

    Bankruptcy can clear most unsecured debts, including:

    • Credit card bills
    • Medical bills
    • Overdue utility payments

    Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.

    What Debts Are Not Covered by Bankruptcy?

    • Child support
    • Alimony obligations
    • Those related to personal injury or death in a drunk driving case
    • Any debts not listed on your bankruptcy papers

    No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.

    What Debts May Be Covered?

    Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.

    Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.