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Understanding the Chapter 7 Means Test

Chapter 7 means test

In order to qualify to file Chapter 7 bankruptcy, you must complete a “means test.” This test determines your eligibility based on factors like your income, debts and family size. The means test consists of two parts. The goal of the Chapter 7 means test is to determine whether you have any disposable income that you could use to pay off your debt. This process can be confusing and frustrating for consumers. That is why it is recommended that you speak with an attorney before attempting the means test.

Steps in the Chapter 7 Means Test

There are a few steps involved in completing the means test. These include:

Step One

The first step in completing the means test is determining if your income meets or is below the median income in your state. To do this, you will need to gather as much information as you can about your income over the last six months. You will also include information about your current and future income, such as if you lost your job, got a raise or changed jobs.

If you are below the median income, then you pass step one and are initially qualified to file for Chapter 7 bankruptcy. Most people who take the means test do qualify (only 12% do not).

Step Two

Step two involves gathering information about your expenses from the past six months. For this step, you should be as thorough as possible, and include expenses related to:

  • Rent or Mortgage
  • Car payments
  • Groceries
  • Clothing
  • Medical costs

These are called allowable expenses. There are local and national standards as to what can be considered allowable, so this list may look different for you. Any income that is left after calculating your allowable expenses is considered disposable income, which could be used to pay off your debt.

It is very important to include all expenses when filing for Chapter 7 bankruptcy. Failing to disclose expenses or adding the same expense twice can result in your case being dismissed. It is the debtors (yours) responsibility to be forthcoming and honest about your financial situation.

Step Three

If you pass both stages of the means test, then you will be eligible to file for Chapter 7 bankruptcy. When you file for Chapter 7 bankruptcy, you can pursue debt forgiveness for unsecured debts like credit cards or medical bills.

If you do not pass the means test, then you will need to consider other options for debt relief. Alternatively, you can wait six months and then take the means test again if your situation changes. If you do not pass the means test for Chapter 7, you may have the option of filing Chapter 13.

Step Four

If you do pass the means test and decide to continue with the process for filing Chapter 7 bankruptcy, the next step is hiring a bankruptcy attorney. An attorney can help make sure that your legal rights are protected throughout the bankruptcy process. Also, your attorney will ensure that you are pursuing the best option for your financial situation. Furthermore, working with an attorney can help open access to resources that may be helpful if you do not pass the means test, or if your case is held up or denied for some reason.

Legal Guidance for Chapter 7 Bankruptcy

If you are considering filing for Chapter 7 bankruptcy, get legal guidance that works for you. Contact Daic Law to find out how our bankruptcy attorney can help you resolve your debts. Let us help you move forward toward a brighter, more stable financial future. For a free consultation, call us at 877-893-6040. Our team helps clients with debt relief including bankruptcy, debt defense, and debt collection lawsuits. We serve Houston, Dallas, San Antonio, Austin, and surrounding areas.