What is the Chapter 7 Bankruptcy Means Test?

A Chapter 7 or liquidation bankruptcy allows a debtor to eliminate most unsecured debts after liquidating non-exempt property to pay off a portion of their debt. While Chapter 7 bankruptcy is the most common type of consumer bankruptcy filed, not everyone is eligible to file for bankruptcy Chapter 7.

The Chapter 7 bankruptcy means test is used to determine if a petitioner is qualified to file for Chapter 7, or if they have enough disposable income to repay both unsecured and secured debts in a Chapter 13 reorganization bankruptcy. If you’re considering bankruptcy, consult a local bankruptcy attorney to determine which types of bankruptcy you should file for.

 How does the means test work?

The means test was designed to prevent Chapter 7 bankruptcy filings from debtors who can afford to repay their creditors. The test takes your current monthly income and compares it to the state median income level. The median income varies from state-to-state and will have different values for different household sizes.

If your income exceeds the state median, your living expenses will be deducted from your income to calculate your disposable income and determine if you have enough left over for debt repayment.

How do I pass the means test?

If your income is less than the median income level for your household size, you pass the means test and can start filling out your petition in bankruptcy.

However, if your household income exceeds the median, you’ll need to go through a more complicated means test calculation. This is to determine your disposable income and see if you have the ability to pay back your debts. Median income levels vary as each state has different allowable amounts for living expenses and necessities.

If you don’t have enough to make a debt repayment plan, you pass the means test and are eligible to file for Chapter 7. Otherwise, you can convert your bankruptcy case to a Chapter 13, also known as the wage-earner plan.

Which bankruptcy forms do I need for the means test?

Chapter 7 means test forms are downloadable from the US Bankruptcy Court website. There are three forms used for the bankruptcy means test:

• Fill out Form 122A-1 to determine if your current monthly income falls under the state median income. You don’t need to go through the other two forms if your current income qualifies.
• Complete Form 122A-2 if your income exceeds the median, but you don’t have enough disposable income to follow a Chapter 13 payment plan. 
• The last form (Form 122A-1Supp) only applies to certain members of the military who qualify for exemption from means-testing.

If you qualify for Chapter 7, you also need to fill out your bankruptcy petition, which requires you to provide in-depth information regarding your secured and unsecured debt and current financial situation. You can seek help from a bankruptcy petition preparer or hire a bankruptcy attorney to help you file for bankruptcy and guide you throughout the bankruptcy process.

Do I need a bankruptcy lawyer?

Filing for bankruptcy need not be stressful. If you’re dealing with debt and want to file bankruptcy, it’s best to get legal help from an experienced bankruptcy attorney. At The Grafton Firm, LLC we can provide you with legal assistance from exploring your bankruptcy options to attending your bankruptcy hearing. Contact us today to get a free consultation and learn how you can get debt relief.