Are you considering filing for chapter 7 bankruptcy? Before doing so, make sure you pass the bankruptcy means test, which is designed to ensure that only those individuals who truly cannot pay their debts file for bankruptcy. The means test determines whether or not your income is too high to qualify for bankruptcy. Even if you do not pass the means test, you can still file for chapter 13 bankruptcy and repay a portion of your debts. A qualified chapter 13 attorney can assist you with filing. Below, we discuss how to determine if you can pass the means test to file chapter 7.
First, determine what your state’s median income is. If your monthly income is less that the state median income, you qualify for chapter 7 and do not have to pass the means test. If you earn more than the state median income, you then need to determine what your disposable income is. Compute your current monthly income, which is your average income the 6 months prior to filing. After deducting specific necessary monthly expenses from your current income, the money left over is your disposable income. If your disposable income is greater than a certain amount, you are not eligible for filing chapter 7.
Even if you do qualify for chapter 7 bankruptcy, that doesn’t necessarily mean you should. Filing for chapter 7 bankruptcy should only be done after considering other alternatives and speaking with a bankruptcy attorney.
Individuals who do not pass the means test are limited to filing for chapter 13 bankruptcy. With chapter 13, you’re required to make monthly payments over either 3 or 5 years at an amount that is strictly monitored by the court. Because chapter 7 does not require any debt payback, most people prefer it. Nevertheless, speak with an attorney to see how filing for chapter 13 bankruptcy is the best way to handle certain debts, such as curing a mortgage default.