Chapter 7 Bankruptcy Eligibility Requirements
The Chapter 7 Means Test and You
Filing Chapter 7 bankruptcy is an attractive option for many people facing financial difficulties.
With that said, you should know that a Chapter 7 means test exists to determine whether you are or are not eligible for this consumer bankruptcy protection. Because filing Chapter 7 bankruptcy essentially dissolves a person’s unsecured debts (such as credit card and medical bills), bankruptcy courts have to limit Chapter 7 bankruptcy eligibility.
While the following page goes into the Chapter 7 means test in more detail, determining your own Chapter 7 eligibility may be a bit tricky. That’s why it may make sense to let Chapter7.Me connect you with one of our sponsoring bankruptcy attorneys in your area.
All you have to do is fill out our free bankruptcy evaluation form or call 1 (888) 632-0501, and we’ll quickly get you connected with a local bankruptcy lawyer who can examine your Chapter 7 bankruptcy eligibility and what this consumer bankruptcy protection may do for you.
In the law’s eyes, it wouldn’t be fair to lenders if everyone could discharge their debts and possibly wipe their slates clean—that’s why there are steps in place to screen Chapter 7 applicants. Part of a bankruptcy court’s job is to ensure that Chapter 7 bankruptcy is only available to those most in need.
The Chapter 7 Means Test -- Don’t Be Thrown Off by the Word “Test”
A 2005 federal law called the Bankruptcy Abuse Prevention and Consumer Protection Act requires that every Chapter 7 bankruptcy hopeful determine eligibility for this form of bankruptcy via a means test.
The Chapter 7 bankruptcy means test is the bankruptcy court’s method to make sure that only people who have no means to repay their debts are permitted to file Chapter 7. The means test is not a typical “test”—it’s more of a formula the bankruptcy court uses to determine the financial health of a person.
If the bankruptcy court runs the Chapter 7 bankruptcy means test and determines that there’s no way for you to pay off your outstanding unsecured debts, then you’ll be allowed to file Chapter 7 bankruptcy.
Can You File Chapter 7 Bankruptcy?
As discussed above, if you are seeking to file Chapter 7 bankruptcy, you must fill out specific forms that detail your financial figures.
The bankruptcy court then takes your financial figures and applies a statutory numerical test—which is the Chapter 7 bankruptcy means test—to determine if you qualify to file Chapter 7.
The formula establishes whether you have enough money to make minimal payments to creditors through a Chapter 13 bankruptcy plan. If you don’t have the financial means to do so, they’ll likely find that the only option left is to discharge your debts through Chapter 7 bankruptcy.
Generally, if your income level is below your state’s median income level or if you have less than $100 of “disposable” income each month, then it’s likely that you’ll qualify for Chapter 7 bankruptcy protection.
A Breakdown of the Chapter 7 Bankruptcy Means Test
The Chapter 7 means test consists of different stages that may or may not be applicable to your situation.
Depending on your income level, you may “pass” the initial stage and not have to undergo the second stage of the test. The next stage of the means test is a bit more complicated and involves more number crunching.
Here are the details of the Chapter 7 bankruptcy qualifying stages:
Comparing Your Income with the Median Income in Your State:
This stage examines your monthly gross income over the last six months to determine whether it’s below your state’s median income level for a family the same size as yours. If your income falls below the median level, you will be able to skip the second stage and proceed with your Chapter 7 bankruptcy filing.
Note: If your income level wasn’t below your state’s median income level, don’t worry. You simply have to move onto the next stage of the means test and may still be eligible to file Chapter 7 bankruptcy.
Calculating Your Disposable Income and Unsecured Debts:
This stage of the bankruptcy qualifying process requires a finer examination of your finances. It’s a bit more in depth and involves calculating your disposable income. If the bankruptcy court determines that you have less than $100 of “disposable” income each month, then you are still eligible to file Chapter 7 bankruptcy.
If you don’t pass the Chapter 7 means test, don’t panic. There are other roads you can take to attain financial freedom—check out Chapter7.Me’s section on Chapter 7 bankruptcy alternatives.
With that said, most people have found that they are still eligible to file for Chapter 7 bankruptcy, even with the means test in play as a result of the 2005 bankruptcy law.
Questions about Your Chapter 7 Bankruptcy Eligibility?
We here at Chapter7.Me try our best to provide you with all the Chapter 7 bankruptcy information you need; however, we know that you might have additional questions pertaining to your unique situation.
We are sponsored by bankruptcy attorneys nationwide who are ready to talk to you and answer your Chapter 7 bankruptcy questions. Connect to a local bankruptcy lawyer by filling out our free bankruptcy evaluation form or by calling 1 (888) 632-0501.
The above synopsis of bankruptcy laws is by no means all inclusive
and is not intended to provide legal advice. These laws may have
changed since our last update and there may additional laws that apply
in your situation. For the latest information on these bankruptcy laws,
please contact a local bankruptcy lawyer in your area.