Chapter 7 Filing Eligibility – Means Test

The 2005 amendments to the Bankruptcy Code included a “means test” intended to make it more difficult for wealthy consumers to file Chapter 7 bankruptcy. If your income is below the median family income for your household size, you need not worry about the “means test.”

Most people who are considering bankruptcy want to file a Chapter 7.  There’s a good reason. In a Chapter 7, there is no requirement to repay your debts. The time from filing to finish is normally about 4 months. Chapter 7 can wipe out most common debts (other than student loans) unless it’s a debt you want to keep – like the mortgage on your home.

Chapter 13 has its own advantages, but most people choose it over Chapter 7 only it certain situations. Unlike a Chapter 7, Chapter 13 can stop a foreclosure and let you get caught up on the missing payments. Chapter 13 can allow you to keep some especially important items of property that you might lose in a Chapter 7. While Chapter 13 is usually much better than not filing bankruptcy, most people want to file a Chapter 7.

Are you wondering if you’ll be able to file for bankruptcy under Chapter 7?  Most people find that they can file a Chapter 7.

Determining who can file for bankruptcy is complicated. Here’s a condensed explanation of how the Chapter 7 means test works:

– The Chapter 7 means test compares your gross monthly income to a family of the same size as yours in your state. If your income falls below the median amount, you can usually file for Chapter 7 bankruptcy.

  • The median income is based on the size of the family.
  • The threshold for Florida as of April 1, 2016, ranges from approximately $44,000 for a family of one to $84,000 for a family of six.

– If your income is higher than the median amount, a calculation of your monthly expenses, income, and debts is used to determine whether you can file under Chapter 7.

Even if your income exceeds the median income based on the number of people in your family, you may still qualify for Chapter 7 if you do not have enough disposable income to make a significant monthly payment to your credit card debts and other forms of standard unsecured debts. A debtor’s disposable income is evaluated after allowing for a number of deductions from your gross income, which include the following:

  • Standard mandatory payroll deductions
  • Secured obligations (e.g. mortgage, financed vehicles)
  • Priority unsecured debts (e.g. child support, alimony, certain taxes, etc.)
  • Necessary living expenses in amounts allowable under IRS regulations
  • Certain extraordinary expenses that occur regularly
  • Certain expenses based on actual amounts paid

Debtors that do not have enough income remaining after these amounts have been deducted qualify for Chapter 7 under the means test

Debtors who do not qualify for Chapter 7 under the means test can file a Chapter 13 bankruptcy.  Call us so we can evaluate your situation and advise you about your eligibility under the Chapter 7 means test.  Contact us today to schedule your 30 minute consultation.