| Examining the Chapter 7 Means Test |
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| Written by Chris Blanchet |
| Monday, 08 June 2009 14:10 |
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When filing for Chapter 7 Bankruptcy, most if not all of your assets are ordered sold by the Courts. When Trustee sells these assets, the proceeds are used to repay creditors. In other words, Chapter 7 Bankruptcy often means losing the assets you own.
When filing for Chapter 7 Bankruptcy, most if not all of your assets are ordered sold by the Courts. When Trustee sells these assets, the proceeds are used to repay creditors. In other words, Chapter 7 Bankruptcy often means losing the assets you own. The Means Test is utilized by the courts to examine whether the person is eligible for bankruptcy under Chapter 7 or Chapter 13. Below, we examine points that are specific to Chapter 7 Bankruptcy. As far as the Courts are concerned, the Chapter 7 Means Test starts with the following measurements: 1. Your average income over the last half year. 2. Whether your average income exceeds or falls short of the particular State's median income. In other words, if your average income over the past six months is less than your State's median income, then you qualify for Chapter 7. If, however, your income exceed the median, then the Court will take further steps to determine whether you qualify. If the average personal income is greater than the median, then the Chapter 7 means test proceeds further. This includes the following: 1. Calculations are made where the Courts will subtract allowable expenses from your actual income figure. This should produce more of a disposable income figure. With this more-accurate figure, the Courts will multiply it by 60 to get a total income value for the next 5 years. 2. Another comparison is made where the Courts will stack your 5-year income against the State's median income. If your amount exceeds the median's by $10,000, then you do not qualify for Chapter 7 (although you would most likely qualify for Chapter 13). In the event, however, that your 5-year figure exceeds the median, but your monthly income falls short, then you still qualify. On top of all this, your disposable income figure should be no more than 25% of your total unsecured debt level. In the event that it is more, you will not qualify under the Chapter 7 Means Test and may have to seek protection under Chapter 13. In order to determine whether you will qualify for Chapter 7, you can complete these steps at home and measure your 6 month average and 5 year figure against your State's median figures. Of course, if your numbers are close to the median, it is still worthwhile to speak with a professional who will need to complete this step anyway. As well, you will want to review the impact that Bankruptcy will have on your life in the short- and long-term. If you have the means to repay your debt, you will want to explore such options before causing irreparable damage to your financial life. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Chris Blanchet is the author of the Personal Finances e-book Help Fix My Finances, which provides the basis for the Members Only website of the same name. Be sure to visit his Debt-Free Blog. |