Before you can file for Chapter 7 bankruptcy, you must pass what is known as the “Chapter 7 means test.” This an income-based formula that is designed to prevent high-income earners from filing for Chapter 7 bankruptcy. Instead, they must file for Chapter 13 bankruptcy, which obligates them to repay some of their debts via a highly-structured repayment plan vs. wipe out their debts altogether. Note also that Chapter 7 is only available for individuals, not businesses.
About the Chapter 7 Means Test
The first and easiest step in the Chapter 7 means test is to note your annual income, and determine whether it is less than that of a similarly-sized household your state. Each state has its own median income levels. For example, here are the current levels for Missouri:
- 1 Person Household: annual median income of $40,994
- 2 Person Household: annual median income of $51,421
- 3 Person Household: annual median income of $57,468
- 4 Person Household: annual median income of $72,230
- 5 Person Household: annual median income of $80,330
- 6 Person Household: annual median income of $88,430
- 7 Person Household: annual median income of $96,530
- 8 Person Household: annual median income of $104,630
- 9 Person Household: annual median income of $112,730
- 10 Person Household: annual median income of $120,830
If your household’s annual median income as equal to or lower t , and are eligible to file for bankruptcy.
What if You Fail the Chapter 7 Means Test?
If you fail the Chapter 7 means test, then determining your eligibility is more complex. You must identify your average monthly disposal income – which is your income minus eligible expenses – for the six months prior to filing. If your disposal income exceeds a minimum threshold, then you cannot file for Chapter 7 bankruptcy. The U.S. Government has a form available online to help you calculate and determine eligibility.
If You Pass the Chapter 7 Means Test…
You should NOT automatically decide to file for Chapter 7 because you pass the Chapter 7 means test. All that passing does is give you an additional option that may – or may not – be in your best interest. Remember, filing for Chapter 7 (or any other Chapter) bankruptcy is a major step, and there are significant, lasting consequences. The smartest and safest thing you can do is get the accurate facts you need to make an informed decision.
Learn More
To learn more about filing for Chapter 7 bankruptcy, and for additional details on the Chapter 7 Means test, contact the Law Office of Charles Huber today.
