The Chapter 7 Means Test: What it is and What it Means for You
Filing for bankruptcy is often looked at as a last resort and is an extreme measure. If you’re struggling financially and are missing payments, filing for bankruptcy can save you money, get you back on your feet financially, and give you peace of mind.
What is Chapter 7 Bankruptcy?
Chapter 7 gives individuals who are unable to pay off their bills a fresh start. A judge may also sign off and wipe out most general unsecured debts without the need to pay back balances through a repayment plan. Most personal property is exempt from repossession, meaning that the person will be allowed to keep any belongings after filing.
Complete the Chapter 7 Means Test
The means test is a way for an individual to determine whether his or her income is low enough to file for Chapter 7 bankruptcy. Its formula was also designed to keep high wage earners from filing for Chapter 7 bankruptcy.
Step 1: Income Median. If your monthly income is less than the median income for a household of your size in your state, you do not need to complete the rest of the means test. You are able to file for Chapter 7. If you’re above the median income, continue to the next step.
Step 2: Disposable Income. If you have a high disposable income, you more than likely won’t be allowed to file for Chapter 7 bankruptcy. To determine what your disposable income is, take a look at what you have left over after paying your monthly expenses. If your disposable income adds up to be below a certain amount, you may file Chapter 7. If you fail the means test and have a high disposable income, you cannot file for Chapter 7 bankruptcy.
Step 3: Online Forms for Eligibility. Filling out the means test forms on the U.S. Bankruptcy Court’s website can help you determine if you’re eligible for Chapter 7. You’ll start with Form 122A-1 to determine your income. If you find your income is above the state median, you’ll fill out Form 122A-2. Some people, such as military members, can fill out Form 122A-1Supp to determine whether they’re exempt from the means test.
What To Do If You Pass The Means Test
Passing the means test doesn’t automatically qualify you to file for Chapter 7. The bankruptcy court will need two additional forms. The first is Schedule I: Your Income and the second being Schedule J: Your Expenses. If the courts decide that after deducting your actual monthly expenses you have enough remaining to pay your creditors, they might switch your case to a Chapter 13 bankruptcy requiring you to create a repayment strategy.
Next Steps If You Don’t Pass the Means Test
You have the option to file for a Chapter 13 bankruptcy, which requires you to make monthly payments over a three to five year period following a strict budget monitored by the court.
Seeking Professional Help
Even with the means test, it is recommended you seek an attorney with Chapter 7 and Chapter 13 experience to help you proceed with your filings. With offices conveniently located in center city Philadelphia and Lansdale, we proudly serve clients in the city and all surrounding counties. If you’re considering filing after taking the means test, or have questions about the means test, please call us at 267-218-9776.