What is the Means Test in Chapter 7 Bankruptcy?
Filing bankruptcy is a great option for people who are struggling with significant debt that they cannot repay. However, not everyone is eligible to have their debt discharged, or eliminated. As part of the massive bankruptcy reform that occurred in 2005, the means test was introduced as one of the main requirements for anyone filing Chapter 7 bankruptcy.
Although this rule has been around for two decades now, people still have many questions about it. Below, our Florida Chapter 7 bankruptcy lawyer explains this eligibility requirement in further detail.
How Does the Means Test in Chapter 7 Work?
The Chapter 7 bankruptcy means test ensures that people filing for this type of relief do not have the income, or the means, to repay their debts. People who do not have the means will pass the test and can continue with Chapter 7.
The means test starts by determining if your current monthly income is greater than the state’s average income for the size of your family. Your current monthly income is calculated by multiplying your gross income earned over the six months before filing bankruptcy by two. If your average monthly income is not greater than the average income in the state for a family of the same size, you pass the means test.
What Happens if You Pass the Means Test?
Even if you pass the means test, it does not necessarily mean that you automatically qualify to proceed with Chapter 7. The bankruptcy court will also review your income and expenses to determine if you can afford to repay a portion of the debt to your creditors. If so, the bankruptcy court may convert your Chapter 7 bankruptcy to a Chapter 13 bankruptcy.
Additionally, just because you do pass the means test does not necessarily mean that Chapter 7 bankruptcy is right for you. There are some drawbacks to Chapter 7 that you should consider. For example, while a Chapter 7 bankruptcy will remain on your credit report for ten years, a Chapter 13 bankruptcy only stays on your credit report for seven years.
What Happens if You Do Not Pass the Means Test?
It is natural to feel stressed after learning you did not pass the Chapter 7 means test. However, it is important to remember that you do still have options. If you do not pass the means test, you can likely still file Chapter 13 bankruptcy. Unlike in Chapter 7, you do not discharge your debt during Chapter 13. Instead, your debt is reorganized into a repayment plan that can make it easier for you to repay. Any debt that is remaining after the payment plan is complete may then be discharged.
Our Chapter 7 Bankruptcy Lawyer in Florida Can Advise On Your Case
Filing bankruptcy is not always straightforward, and there are often eligibility requirements you must meet. At Nowack & Olson, PLLC, our Florida Chapter 7 bankruptcy lawyer can advise you of what these are, if you meet them, and any alternatives that may be better for you. Contact us to schedule a consultation and to learn more about how we can help with your case.
Source:
law.cornell.edu/uscode/text/11/chapter-7
