Chapter 7 Bankruptcy Means Test
Chapter 7 bankruptcy is available to certain individuals who cannot pay their debts, such as credit card debt and past-due medical bills. If you qualify for Chapter 7 bankruptcy, you may be able to receive a discharge for most of your debts. This means these debts are forgiven and creditors cannot continue to demand this money from you.
However, there are specific requirements you must meet to discharge debt in a Chapter 7 bankruptcy filing. To determine whether you are eligible, the Congress established a “means test” where a debtor’s debt is primarily consumer in nature. The bankruptcy means test determines whether your income (based on the 6 months prior to the filing) and expenses (some actual and some standardized) makes you presumptively ineligible for a Chapter 7.
The board-certified Chapter 7 bankruptcy lawyers of the Sasser Law Firm have more than 20 years of experience helping North Carolina residents and businesses navigate and overcome financial setbacks. Contact us today for a free discussion about Chapter 7 bankruptcy or another option that is right for you.
How to Complete the Chapter 7 Bankruptcy Means Test
Means tests were added to bankruptcy proceedings in 2005 to prevent abuse of a system that allows individuals and businesses to work their way out of crushing debt obligations
For Chapter 7 personal bankruptcy, which is a liquidation of assets to pay debts, the question of means focuses on whether you have enough income to pay some amount of money toward your debts. If you cannot, many of your debts can be discharged, which means you no longer have a legal obligation to pay them.
The first question to answer in the Chapter 7 bankruptcy means test is whether your monthly income is more or less than the median income in North Carolina. This is calculated according to the size of your household.
If your current monthly income is less than the median income for a household of your size in North Carolina, you are presumptively eligible for bankruptcy under Chapter 7 of the bankruptcy code although there is still a chance your case can be dismissed based on abuse.
If your income is more than the median income for a household of your size, the cost of your living expenses may make you eligible for Chapter 7 bankruptcy. Once expenses are considered, the means test considers your left-over, disposable income.
Some of the expenses that may be considered include:
- Food and clothing
- Health care (out of pocket)
- Health and/or disability insurance premiums and/or health savings account contributions
- Necessary care and support of an elderly, chronically ill, or disabled member of your household or member of your immediate family who is dependent on you.
- Mortgage or rent
- Household operating expenses and insurance
- Car loan or lease payments
- Vehicle operating costs
- Public transportation costs
- Court-ordered payments
- Education expenses for dependent children younger than 18, up to $170.83 per child (a maximum adjusted periodically)
- Tuition for job-related education or for services for a physically or mentally challenged dependent child if no similar public education is available
Each expense is calculated according to the number of people in your household, and health care costs are calculated separately according to whether individuals in the household are younger than 65 years old or 65 or older. There are additional caveats and conditions throughout the “test.”
If what’s left when you deduct allowable expenses from your income — your disposable income — is more than the median monthly income in the state, you fail the means test and are presumptively ineligible to have your debt discharged by filing for Chapter 7 bankruptcy although you may still qualify for a discharge based on a showing of “special circumstances.”
To calculate the means test, you must submit the completed Chapter 7 Statement of Your Current Monthly Income (Official Form 122A─1) and the Chapter 7 Means Test Calculation form (Official Form 122A–2), which may remind you of tax forms.
If you are a disabled veteran whose debts mounted during a deployment, or a Reservist or member of the National Guard called to active duty after 9/11, you may be exempt from means-testing. You would need to complete the Statement of Exemption from Presumption of Abuse Under § 707(b)(2) (Official Form 122A─1Supp).
In addition to completing the monthly income and means test forms, you may be required to submit documentation (e.g. paystubs and bank statements) that reflect your income and expenses.
Even if you pass the Chapter 7 bankruptcy means test, there are additional considerations as to whether a Chapter 7 filing is correct for you and your financial situation.
You Still Have Options if you Fail the Chapter 7 Means Test
Individuals who do not qualify for Chapter 7 bankruptcy may end up filing under Chapter 11 or Chapter 13.
A Chapter 13 bankruptcy allows individuals who have a steady income to propose a plan to pay all or a portion of their debts. A plan, which must be approved by the Bankruptcy Court, may stretch payments over three to five years.
The means test is based on your average income for the six months preceding your filing date. In some cases, a debtor may be able to delay their bankruptcy filing and, because circumstances change, pass the Chapter 7 means test at a later date.
A Sasser Law Firm bankruptcy attorney can assist you by explaining the pros and cons of Chapter 7 debt relief and its alternatives. If Chapter 7 is the solution for you, we can perform all necessary legal work for you.
How Can Our Chapter 7 Bankruptcy Lawyers Help You?
The compassionate bankruptcy attorneys of the Sasser Law Firm have dedicated our careers to helping individuals, families, and businesses start over financially. We are board-certified bankruptcy lawyers who favor a straightforward approach to evaluating cases, and who will tell you the options that will suit your situation best, including steps you could take to avoid bankruptcy.
The Sasser Law Firm has helped more than 8,500 people and businesses file for bankruptcy in Raleigh. Our attorneys work one-on-one with clients, and we act promptly and with consideration for time-sensitive and complex cases.
Contact us today to discuss your case in a free consultation with our Raleigh bankruptcy lawyers. We work with clients from throughout North Carolina, including in Wake, Harnett, Johnston, Durham, Orange, Granville, Vance, Franklin, Warren, Nash, Lee, Chatham, and Moore counties. Call now.