One of the most commonly filed forms of bankruptcy today is Chapter 7. What this form of bankruptcy does is allow you to liquidate assets that are non-exempt, not including your home, car, and other things needed for day-to-day life, to pay your debts. If you still have debt left over that isn’t secured, it is typically written off, or discharged. However, not everyone can file this type of bankruptcy — to do so, you must first pass what is called a means test.
What is the Means Test?
The means test is a simple one and it is designed to ensure that people who have substantial incomes aren’t able to have their debts discharged through a Chapter 7 bankruptcy. Individuals with higher incomes may benefit more from a Chapter 13 bankruptcy, where none of the debt is discharged but they are given a 3-5 year time frame in which to repay their debts.
Qualifying for Chapter 7
The initial portion of the means test is simple: if your family makes less than the average income for a family of your size in your area, nothing further is needed. You automatically pass the test and are eligible to file a Chapter 7 bankruptcy.
If you do make more than the average income for a family of your size in your area, you may still be able to pass the means test if your disposable income doesn’t exceed a certain amount. Expenses like rent or mortgage, utilities, and other necessities will be subtracted from your total income and what is left over will be analyzed. If it’s under a certain amount, you’ll still pass the test. If your income disposable income is considered too high, you will be eligible for other types of bankruptcy, like a Chapter 13, but not a Chapter 7.
In some cases, individuals who do not pass the means test can still file for a Chapter 7. This typically occurs when the individual can show that they have a high debt to income ratio and would not be able to make payments under a Chapter 13 plan.
Contact a Bankruptcy Lawyer Today
When bills start piling up and you don’t seem to have enough money to get them all paid, you need relief. At the Law Office of Howard Tagg, we can help you determine if you’re eligible for a Chapter 7 bankruptcy or another kind of debt relief. Contact us today for a consultationÂ (903) 581-9961. We’re available now to help you get started on the road to financial freedom.