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.
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 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.
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.
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.
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