Bankruptcy Means Test: Comply with the Chapter 7 Bankruptcy Rules
July 22, 2017
New bankruptcy rules were introduced under the Bankruptcy Abuse Prevention and Consumer Protection Act. In order to prevent Americans from eliminating debt that they could realistically afford to repay to their creditors, a bankruptcy means test was introduced.
As well as a means test for bankruptcy, you will also be expected to surrender any non-exempt assets, such as a second home or luxury car, to a court-appointed trustee. These are then sold and the proceeds disseminated to creditors on a pro rata basis. You mustn’t have filed chapter 7 in the last eight years.
Chapter 7 Bankruptcy Means Test Based on Your Monthly Median Income
The standard means test for bankruptcy involves checking to make sure that your income is below the median for your state. If your average monthly income over the six months prior to lodging your petition is below the state median, you qualify for chapter 7 under the new bankruptcy rules.
The median figure is calculated based on the census bureau median family income data by family size. In essence, the larger your family, the more likely you are to qualify. If you have more than four dependents, you should add a further $6,900 for each additional member of your family for that 12 months.
Means Test for Bankruptcy Based on Your Disposable Income
If you don’t qualify under the standard means test for chapter 7, the new bankruptcy laws allow you to deduct certain expenses from your disposable income. There’s a lot of different expenses that can be legally deducted from your income, such as rent, utility bills, transportation, taxes and child care.
After the deduction of all relevant expenses, multiply your monthly disposable income by sixty. If your total income is less than $6,575 you can file chapter 7 under the new bankruptcy laws. If the figure exceeds $10,950, you are unlikely to be eligible unless there are exceptional circumstances.
Chapter 7 Means Test Based on Your Total Unsecured Debt
If your income falls between $6,575 and $10,950, you’ll need to assess your debt relative to your income. You’ll need to calculate the value of a quarter of your total unsecured debt. If your disposable income figure is less than 25% of this figure, you can file for chapter 7 under the new bankruptcy rules.
Hiring a Bankruptcy Lawyer to Perform the Means Test for Bankruptcy
If you don’t qualify under the standard means test for bankruptcy, it can be difficult to ascertain whether you are likely to comply with the new bankruptcy rules. Most bankruptcy lawyers will provide a free initial consultation to help decide whether filing chapter 7 bankruptcy is right for you.
How to File for Bankruptcy when You Don’t Qualify Under Chapter 7
Not everyone qualifies under the chapter 7 bankruptcy means test, but you can still file for chapter 13. You will receive full court protection from your creditors, but you’ll be expected to make a payment to creditors for either a three or five year period.