Bankruptcy is nothing to ashamed of, which is why you need to make the best choices for you and for your family. Our offices represent hundreds of people like you throughout the Phoenix, AZ, Denver, CO, and Las Vegas, NV areas, and we know that people who get caught up in the avalanche of debt need relief that comes with dignity. In this article, we’ll talk about Chapter 7 eligibility through the means test, and the other factors that go into determining whether Chapter 7 bankruptcy is for you.
The means test helps determine if you are eligible for Chapter 7 bankruptcy. While Chapter 7 bankruptcy can remove debt accountability and give you a fresh start, it is often the case that many can (or must) successfully get out from under debt through Chapter 13 bankruptcy repayment plans instead. In fact, depending on the outcome of the means test, you may only be eligible for Chapter 13 repayment and not for Chapter 7 debt discharge.
Chapter 7 Eligibility
Chapter 7 is not necessarily for everyone: you might be ineligible for Chapter 7, or better served using a Chapter 13 repayment plan. Check out our page on Chapter 7 Eligibility and Requirements to learn more.
The Means Test
The basis for Chapter 7 filing is the means test. This test takes income, debts, expenses, and other financial information to determine your ability to repay debt. If you “flunk” (show that you can repay at least some of your debts) then you will need to file Chapter 13 bankruptcy under a repayment plan. Check out our page on the Bankruptcy Means Test to learn more.
The good news is that if your debt falls under certain conditions (you previously served in the military, or your debt is primarily business debt) you don’t need to pass the means test. Read more information on opting out of the means test on our page about not taking the means test.
Following this, you should learn more about “Consumer vs. Nonconsumer Debt” to determine whether or not you will need to take the means test.
You’ll also need to understand how to calculate “current monthly income” as determined by Congress. Check out our “What is Current Monthly Income for the Means Test?” page to calculate this information. The general rule us that the lower your income, the more likely you are to pass the test. This is beneficial for those who have suffered a recent drop in salary or loss of employment, as these conditions do not count against you when filing Chapter 7.
You’ll also need to understand your household size, expenses, and employment status will affect the means test. In many cases, you can make deductions or adjustments that can mean the difference between a fail and a pass. Our pages on expenses and the means test, household size and the means test, and how mortgages can help you pass the means test can help you fine-tune your monthly income and finances to better represent your financial status.
Don’t forget that you can also adjust deductions and expenses when it comes to the means test based on your marital status. Check out what “Adjustments of Means Test for Spouse Filing Bankruptcy Alone” and “Allowable Deductions for the Means Test” are available to you based on your marital and filing status.