Even if you think you have a lot of debt, you may not be eligible to file a Chapter 7 and walk away from it.
WHAT IS THE MEANS TEST?
To file a Chapter 7 bankruptcy, your household income over the last six calendar months cannot exceed the median income for a household the size of yours. This is known as the means test. The means test for Chapter 7 is the last of the bankruptcy documents, but should be considered first.
A Chapter 7 bankruptcy is what most people think of when they think of bankruptcy. And it is what most people hope they can file. Chapter 7 is fast, straightforward, and eliminates most of your debt and within 3-9 months you walk away with a fresh start toward rebuilding your future.
WHO IS NOT SUBJECTED TO THE MEANS TEST?
The Chapter 7’s means test does not apply if you are a disabled veteran or if more than 50% of your outstanding debts are business debts. In either case, you are automatically eligible to file under Chapter 7.
HOW DO I CALCULATE THE MEANS TEST?
The test for the median income of your household size is essentially determined by “heads on beds,” or how many relatives live under your roof. However, if any of those relatives earns an income, that income must be added to yours to determine your household income. So you may not be making much, but if your spouse does, you can fail the means test
WHAT IF I FAIL THE MEANS TEST?
Failing the means test is not the end of the world. You could still qualify for bankruptcy relief by filing a Chapter 13 where you enter in a payment plan to pay your debts over a period of 3 to 5 years. Depending on your income and expenses, you could still not have to pay a large portion of your unsecured debt.
The means test allows adjustment for expenses, so it can be complicated. If you want help assessing whether you are eligible to file under Chapter 7, contact us to determine how you can best resolve your financial issues.