banner-image

Helping People Get A Fresh Financial Start to Regain Financial Independence

Helping People Get A Fresh Financial Start to Regain Financial Independence

The Chapter 7 ‘means test’

On Behalf of | Apr 22, 2022 | Chapter 7 Bankruptcy

Hard times can fall on just about anyone. Whether it is a job loss, a medical scare or any other reason, it sometimes happens that you find yourself in a position where you can no longer pay your bills. If this goes on long enough, you may find yourself facing frightening calls from debt collectors and defaults in major bills like your mortgage that threaten foreclosure. If this happens, you may want to learn more about Chapter 7 bankruptcy.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is also referred to as “liquidation” bankruptcy. While you will be able to keep certain property designated as “exempt” assets, your non-exempt assets will be sold by a bankruptcy trustee. The proceeds from the sale will be used to pay off your creditors, with some exceptions. Following the sale, many of your debts will be discharged allowing you to move forward into a fresh financial future.

The “Means Test”

To qualify for Chapter 7 bankruptcy, you must pass the Chapter 7 “means test.” If your current monthly income is greater than the median income in your state, you will be subject to the “means test” to ensure your filing is not abusive. There is a presumption of abuse if your total monthly income over five years is greater than $12,850 or 25% of your nonpriority unsecured debt. You can rebut this presumption of abuse if there are special circumstances that justify additional expenses. If you do not pass the Chapter 7 means test, you will have to file for Chapter 13 bankruptcy.

Bankruptcy can help

Filing for bankruptcy, whether it is Chapter 7 bankruptcy or Chapter 13 bankruptcy, is nothing to be ashamed of. It is a perfectly reasonable way to repay your financial obligations, allowing you to move forward with a fresh start into a better financial future.