The Means Test

The majority of debtors will want to file a chapter 7 bankruptcy because, unlike a chapter 13, with a chapter 7, you will not have to make monthly payments for three to five years.  However, to file a chapter 7 bankruptcy, you will have to pass the means test. The means test’s objective is to limit a chapter 7 bankruptcy to those debtors who honestly cannot pay their outstanding bills.

For most debtors, to pass the means test all, you will have to do is check and see if your gross income exceeds the maximum amount allowed via the bankruptcy statutes. The maximum salary amount is based on the US census board and Internal Revenue Service guidelines.  The means test varies from state to state and also the size of your family. The monthly income is calculated using the debtor’s average last six months income.

Please note, just because you are under the amount listed in the means test, if you have little expenses, you still may not be eligible for a chapter 7.  For example, if you live rent free, and make minimum wage, you could feasibly have enough disposable income that the Court would require to file a chapter 13.

If you make above the maximum amount allowed under the means test you still could potentially be able to file a chapter 7 bankruptcy. However, you will have to to have extraordinary expenses that result in you having little income left over to pay your outstanding debt.

The calculation of this “workaround” is quite complicated and requires that use of expensive software.  Also, their are only certain expenses that you can deduct. These expenses have to be justified. For example, it would likely not be justifiable to pay for your 23-year-old child’s car payment or college tuition. However, paying for a chronic medical condition would be considered a justified expense.  Also, general living expenses are based on what the IRS says a typical family should spend in a geographic area.

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