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What is the means test for chapter 7 bankruptcy?

On Behalf of | Apr 26, 2024 | Chapter 7 Bankruptcy

One of the most important factors for filing Chapter 7 bankruptcy is the means test. This test determines whether you qualify for Chapter 7 bankruptcy based on your income and expenses.

Before you decide if Chapter 7 is right for you, you should know how the means test affects your case.

What is the means test?

The means test is a calculation designed to assess whether you have enough disposable income to pay your debts through a Chapter 13 bankruptcy repayment plan, rather than having your debts discharged through Chapter 7 bankruptcy. The test compares your income to the median income for a household of the same size.

How does the means test work?

The means test determines whether your household income is above or below the median income for your household size. If your income is below the median, you qualify for Chapter 7 bankruptcy. The U.S. Census Bureau establishes the median income per household, and the figures can change each year. Make sure you consider the current rates as you evaluate your income.

Are there exceptions to the means test?

There are some exceptions to the means test. Disabled veterans whose debts originated primarily during active duty or performing a homeland defense activity and filers whose debts are primarily business-related may receive an exemption.

The means test helps ensure that Chapter 7 bankruptcy is available to those who truly need it. If you are considering filing for bankruptcy, it is helpful to understand how the means test works to determine your eligibility.