The Chapter 7 Means Test
If you are considering bankruptcy, you may be asking yourself, what is the Chapter 7 means test? In short, it is a financial test to determine if a consumer debtor may file Chapter 7 bankruptcy. Here is how it works:
Does the Test Apply?
First, only debtors with “primarily consumer debts” must pass the Chapter 7 means test. If the majority (in amount) of your debts are non-consumer debts, you do not have to take the means test to filed Chapter 7 bankruptcy. Consumer debts are those that are incurred by an individual primarily for personal, family or household purposes. Examples of consumer debts include your home mortgage, non-business automobiles, credit card debt used for non-business purchases. Essentially, any debt that was incurred to provide for your family and home. Examples of non-consumer debt include back taxes, medical expenses, business debts, including verified business expenses on credit cards and perhaps at least some of your student loan debt (that which went to pay for tuition, books, fees, etc.).
Once you have your total debt, divide into consumer and non-consumer stacks. If the non-consumer stack is larger, you likely do not need to pass the means test to file Chapter 7 bankruptcy.
However, if your consumer stack is larger, you will have to take the means test. If so, here are the basics:
- Is your current monthly income (averaged over the last 6 months) less than the median income for a household of your size in your state? If the answer is yes, you pass the means test and may file Chapter 7 bankruptcy. However, if you are married, and your spouse is not filing, their income must still be used to determine if you pass the means test. It is also important to use “all” income (other than from a few exempted sources). Finally, be sure you accurately quantify how many people are in your household.
- If you household income exceeds the state median income, you may still be able to file Chapter 7 bankruptcy. You will work with your attorney to ensure that your expenses are properly computed and all appropriate deductions are included.
My Income Is Too High
If you are required to take the means test and your income is too high, the next question is, do you have enough disposable income to repay some of your debt. If so, you will likely be required to look at a Chapter 13 bankruptcy.
Every case is unique and it is important to discuss your specific circumstances with an experienced bankruptcy attorney. Call us today, we are here to help!
(We are a debt relief agency and we help people file for bankruptcy relief under the Bankruptcy Code.)