If you are considering filing Chapter 7 bankruptcy, your first step is finding out if you are eligible. To find out if you are eligible, you will complete a “means test.” This test is simple and helps you determine whether you make too much money to file Chapter 7 bankruptcy. Below, we offer some insight into what the test is, what you can expect, and how you will know if you qualify for Chapter 7 bankruptcy.
What is the Chapter 7 Bankruptcy Means Test?
The means test is a questionnaire that calculates whether or not you have the “means” to pay back what you owe to your creditors. If your income is too high, then you may not be able to file Chapter 7 bankruptcy. Instead, you may have to consider Chapter 13 bankruptcy.
What Can I Expect on the Means Test?
The means test asks you questions about your income and expenses. You will report your average monthly income for the prior six months. This figure will be compared to the median income in your state. The test also considers your income compared to national averages and local living expenses. The means test may include local and national standards for living expenses like rent, gas, utilities, clothing and food.
The test then determines if you have “disposable” income after your living expenses are deducted. If so, you may be disqualified from filing Chapter 7 bankruptcy on the grounds that your disposable income could be used to pay creditors. Even if your actual living expenses are higher than what is allowed by local or national standards, you cannot use them to minimize disposable income.
You can deduct actual expenses like a mortgage or car payment, health insurance, childcare and taxes. That means that you could still pass the means test if your income is higher, but you also have an expensive mortgage payment.
How Will I Know if I Pass?
If the average income for six months that you enter into the test is lower than the state median income, then you will automatically pass the means test. That means you do not have to complete the remainder of the test. It also means you likely qualify to file Chapter 7 bankruptcy.
If your income is above the state median, then you can continue to complete the means test. This does not mean that you automatically fail. Instead, you must provide additional information about your income and expenses.
What if I Don’t Pass the Means Test?
If you do not pass the means test, then you will be unable to file Chapter 7 bankruptcy. That does not mean, however, that you cannot file bankruptcy at all. Instead, you may be able to file Chapter 13 bankruptcy. A skilled bankruptcy attorney can advise you on the best way to proceed if you fail the means test.
Have Questions about the Chapter 7 Bankruptcy Means Test?
If you have questions about the Chapter 7 bankruptcy means test, contact Daic Law. Our bankruptcy attorney can help you understand the process of qualifying, and what your options are if you pass or fail. To request a free consultation, call us toll free at 1-877-893-6040. You can also reach us via email at info@daiclaw.com. Daic Law helps clients across the state, including the areas surrounding Houston, Dallas, Austin, and San Antonio.