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The Chapter 7 Bankruptcy Means Test Explained

Worried Businessman on the Telephone

The means test determines whether you have a sufficiently low income to qualify for Chapter 7 bankruptcy. People who do not pass the test but still wish to file for bankruptcy can opt for Chapter 13 bankruptcy, which requires them to organize debt repayment plans.

However, you can still pass the means test if you have a large income as long as you also have significant monthly expenses and debts, such as high mortgage payments or car loans. 

How the means test works

The means test is a way to limit the number of people filing for Chapter 7 bankruptcy. It involves deducting certain monthly expenses from your monthly income, a figure reached by averaging your income over the six months before you filed bankruptcy. The resulting figure is your “disposable income.” The more disposable income you have, the less likely you will be able to file Chapter 7.

The only people who need to take the means test are those filing for bankruptcy with primarily consumer debts. Additionally, people who take the test must first determine if their income is more than the median income level in their state. If so, they must determine if they would have enough money left over after subtracting some expenses to pay back some of their debts. If it is less than the median, they would pass the test.

People whose household income exceeds the median level in the state face certain challenges with the test. If the disposable income adds up to more than a set level, they will fail the means test and be unable to file Chapter 7 bankruptcy. These median income levels depend on where one lives and the size of one’s household.

To learn more about your options, consult with an attorney at Miller Law Group PC, working as a debt relief agency serving central Virginia.