According to a simple textbook definition, the Chapter 7 means test is a parameter to determine whether a family or an individual is sufficiently qualified for a financial assistance program or not. One of the commonest applications of the means test is in determining the qualification of an individual for filing a chapter 7 bankruptcy.
Chapter 7 Means Test
- The means test in bankruptcy involves the determination of whether your income qualifies as sufficiently low for you to file a chapter 7 bankruptcy or not. It is like a security check designed to weed out filers who have sufficient disposable income for repaying their debt under chapter 13 bankruptcy, and are yet filing for a discharge through chapter 7. So, a high-income individual who fails the means test will not be allowed to wipe out their debt through chapter 7. Instead, they will have to file for a partial repayment plan via chapter 13 bankruptcy.
- Before taking the means test, you must first compare your income with the median income in your state. If your income is less than the median, you would automatically qualify for the chapter 7. However, if your income exceeds the median, you would have to take the means test.
- The means test formula involves the calculation of your disposable income by deducting your monthly expenses from your ‘current monthly income’. The current monthly income is determined by taking the average of your income over the past six months. The greater your disposable income is, the less likely you are to qualify for chapter 7.
The basic idea behind the means test is that if a person’s disposable income (income left over after subtracting allowed monthly expenses) adds up to more than a certain amount, he/she is sufficiently capable of repaying a portion of his/her unsecured debts through chapter 13 and not 7. Contact a bankruptcy lawyer in Dayton to learn more about the Chapter 7 means test. Our team of experienced lawyers can help you get back on track.