Are you struggling with debt and considering filing for Chapter 7 bankruptcy? If so, one of the first things you’ll need to determine is whether or not you are eligible for this type of bankruptcy.
Fortunately, there is a tool called the means test that can help you determine if you qualify. In this article, we’ll go over what the means test is, how it works, and what it means for your eligibility for Chapter 7 bankruptcy.
What Is The Means Test?
The means test is a way to determine if your income is low enough to file for Chapter 7 bankruptcy. This test was created as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 in order to prevent people from abusing the bankruptcy system.
Before BAPCPA was passed, anyone could file for Chapter 7 bankruptcy regardless of their income level. However, this led to some people taking advantage of the system by filing even though they had the ability to pay off their debts.
Now, in order to file for Chapter 7 bankruptcy, you must pass the means test. The purpose of the test is to ensure that only those who truly cannot afford to pay their debts are able to file under Chapter 7.
How Does The Means Test Work?
The means test looks at your income and expenses over a six-month period prior to filing for bankruptcy. Your income will be compared to the median income in your state for a household of your size.
If your income is below the median income, then you automatically pass the means test and are eligible to file under Chapter 7.
If your income is above the median income, then things get a bit more complicated. You will need to complete a series of calculations in order to determine whether or not you still qualify under Chapter 7.
First, certain expenses such as rent/mortgage payments, utilities, food and clothing are allowed deductions from your monthly income. After these allowed deductions are subtracted from your gross monthly income (averaged over six months), any remaining amount will be considered disposable monthly income (DMI).
If DMI exceeds $12,000 OR if it would take more than five years (60 months) worth of payments on unsecured debts like credit cards or medical bills using DMI multiplied by sixty months – then an individual may not meet eligibility requirements under chapter seven because their ability suggests they have sufficient resources available which could be used towards repaying creditors instead.
What Does It Mean For Your Eligibility?
If you pass the means test and meet all other eligibility requirements for Chapter 7 bankruptcy (such as having completed credit counseling), then you will be able to file under this chapter.
However, if you do not pass the means test but still wish to file for bankruptcy, there may be other options available such as filing under Chapter 13 instead. Under this chapter, rather than liquidating assets like in chapter seven – an individual enters into repayment plans lasting three or five years designed based on their disposable monthly incomes after allowed deductions have been made against gross monthly incomes
It’s important that before making any decisions regarding filing for bankruptcy that individuals speak with an experienced attorney who understands both federal laws governing bankruptcies as well as local regulations specific within state jurisdictions where case filings occur; ensuring compliance throughout every step along way until discharge obtained successfully without risk against assets held prior to the beginning process.
In conclusion , understanding whether or not someone qualifies under chapter seven requires careful consideration based on several factors including financial history during the previous six month period leading up to the date filed petition(s). It is always best to contact a local bankruptcy lawyer in Decatur, or wherever you reside, to help guide you through the process.
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