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What is the means test for Chapter 7 bankruptcy?

Mar 23, 2022 | Bankruptcy

Financial hardship can be overwhelming, but the bankruptcy process exists to provide some relief and help you recover.

The means test has two parts aimed at determining if you are eligible to discharge all your debt through Chapter 7 bankruptcy or if you can afford to pay back a portion through Chapter 13 bankruptcy.

Is your household income below the average in Louisiana?

The first part of the means test looks at your current monthly income compared to the median for a household of your same size. The test considers recent job losses or gains as well as income from the previous six months. According to the latest census data, the median household income for Louisianans is $49,469, and 17.8% of the population is below the poverty line. If your revenue is lower than the average in your category, then you may qualify for Chapter 7 relief.

How much disposable income can you put toward debt repayment?

If your income is higher than the state’s average, you proceed to the second part of the means test. You will need to gather information related to your allowable expenses from the past six months, including:

  • Rent/mortgage
  • Utilities
  • Transportation costs
  • Groceries
  • Medical costs
  • Clothing

Money left over after paying essential living expenses is disposable income. If this figure is low enough, you may still qualify for Chapter 7. However, if your income exceeds the requirement, you may be able to catch up on your payments through Chapter 13 bankruptcy instead.

When dealing with severe money troubles, it is important to thoroughly examine your financial situation and remain solution-focused while exploring your options for relief. Talking to a bankruptcy attorney can be a good first step in examining your options and deciding which path is right for you.

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