A bankruptcy means test is a way to keep high-income filers from obtaining chapter 7 bankruptcy protection. Chapter 7 is intended to protect those with consumer debt, not business debt, and those who fail can obtain Chapter 13 to repay part of their debt rather than eliminating it. However, the means test doesn’t mean someone must be destitute in order to get chapter 7; filers can earn a substantial income and still get it if they have high expenses. In this article, readers will learn how Bottner & Skillman, attorneys at law, can determine if they may pass the means test.
How Chapter 7 Means Testing Works
Means testing was devised as a way to limit chapter 7’s use to those who truly cannot afford to repay their debt. The test deducts certain monthly expenses from the filer’s average monthly income to arrive at a “disposable income” figure; the higher the number is, the greater the chance of being denied chapter 7 bankruptcy protection. Filers must first find out whether their income is above or below the state average.
Incomes Higher Than the Median, and Repaying Debt with Disposable Income
The first step in the chapter 7 means test is simple: if a filer’s monthly income is below the state average, they pass the means test and can file for chapter 7 bankruptcy immediately. For those with incomes above the average, calculations are more complex. The filer must determine whether they have enough disposable income to repay unsecured debts, and if disposable income is over a set amount, the filer cannot get chapter 7 bankruptcy.
Passing the Means Test
A filer’s qualifications under bankruptcy means testing does not mean that chapter 7 is necessarily the best option. A decision to file for bankruptcy should come only after the filer considers other alternatives, and after they consult a bankruptcy attorney in Martinsburg, WV for advice.
Failing the Means Test
If one fails the test, they are limited to the use of chapter 13 bankruptcy, which requires filers to make monthly payments according to a budget set by the bankruptcy court. Most who file would rather have chapter 7, which has no such requirement; however, chapter 13 is the preferred way to deal with issues such as mortgage defaults. Those in debt should call a bankruptcy attorney in Martinsburg, WV for an assessment of their case and a recommendation on which course of action to take.
