Do You Qualify for Chapter 7 Bankruptcy? Understanding the Means Test
Not every bankruptcy filing is granted. The courts want to ensure that an individual or business needs bankruptcy protection before providing it. To make that decision, the U.S. Bankruptcy Court uses something called a means test, which uses the information you provide to determine whether your financial situation merits a bankruptcy ruling.
The Craig Black Law Firm has extensive experience in preparing Chapter 7 means tests. Contact me at 678-888-1778 or complete my confidential contact form if you're thinking about filing for bankruptcy.
What Is the Chapter 7 Means Test?
The government uses something called a means test to qualify an applicant. This applies to bankruptcy filings and government assistance. The process starts with you, the applicant, answering questions and providing documentation on your financial situation.
In the case of a Chapter 7 bankruptcy, you'll detail your income, assets, expenses, and debts on a series of forms. The court will use this information to determine whether you have enough money coming in to pay down your debts gradually. If the answer is no, you may qualify to have your debts fully discharged in exchange for selling off non-exempt assets.
How the Means Test Works
Once you've submitted your paperwork, an assigned trustee will review the information to determine whether your household income is below the Census Bureau's median income for your state. If your monthly income for the past six months is below that median, you'll automatically pass the means test.
If your income is above the median income, the trustee will take a look at your expenses to determine if necessary costs like healthcare, housing, and utilities merit a bankruptcy filing. The court will disregard expenses it sees as unnecessary since that money could be transferred to debt payments. Our experience in preparing the means tests for clients with greater than the median income is invaluable in this scenario.
Failing the Means Test
Chapter 7 bankruptcy allows you to wipe out all debt, so the courts are understandably hesitant to grant it. If you fail the means test for Chapter 7, you can still request a Chapter 13 bankruptcy. In that case, the court will work out a payment plan that will stop creditor phone calls while you catch up on your bills.
In some cases, the past six months aren't an accurate representation of your future income. If you've recently lost your job, for instance, you may want to wait and file Chapter 7 later. The means test looks at the last six months of income, so waiting until you have six months of little to no income could get better results.
How an Attorney Can Help
The Chapter 7 means test paperwork can be daunting. It's important to be both thorough and accurate in the information you submit, but you'll also want to give yourself the best chance possible of passing.
The Craig Black Law Firm has extensive experience in guiding filers through the Chapter 7 filing process. If you're considering bankruptcy, get in touch with me at 678-888-1778 or complete my confidential online form.