What Is the Means Test in Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a complicated process where an individual or business can liquidate assets to repay creditors and then have any remaining debts discharged once they’ve done everything they can to clear their name financially. To determine whether you qualify for Chapter 7 bankruptcy, you’ll need to take a means test.
The means test examines your income and debts to see whether your level of income is high enough to file for Chapter 13 rather than Chapter 7. Higher-earning individuals will more than likely need to file for Chapter 13 to retain their income and avoid selling their assets to repay creditors.
That’s not to say that making money will prevent you from qualifying for Chapter 7. You might still be able to file Chapter 7 if your bills are substantial. Continue reading to learn more about qualifying for Chapter 7 and what will be reviewed during the means test.
Chapter 7 Eligibility
The means test was implemented after high-earners were resorting to Chapter 7 as a way to clear their debts without having to repay them in their entirety. This is not the purpose of Chapter 7, and the means test is a way to filter out those who might abuse this type of bankruptcy. Before beginning the process of Chapter 7, you’ll take a means test to determine your eligibility.
Here, your average income throughout the last six months will be calculated. From this figure, your necessary monthly expenses will be deducted to establish your monthly disposable income, or what’s left over after paying your bills each month. Those with a high disposable income will likely not qualify for Chapter 7, while those who have little left over will generally qualify.
Consumer or Non-Consumer Debts
Knowing the difference between consumer and non-consumer debts is critical when you’re preparing for the means test. Consumer debts are those that you use to support your household, which might include mortgage payments, car payments, insurance premiums, and the like.
Non-consumer debts include anything that isn’t necessary to support your family, including business debts. More often than not, only those who have primarily consumer debts will need to take the means test, as those who have significant non-consumer debts are expected to file Chapter 13.
Get Help From an Indiana Chapter 7 Bankruptcy Lawyer
If you have questions about the means test and how it will apply to you, or if you need legal representation throughout the Chapter 7 process, get in touch with an experienced Chapter 7 bankruptcy lawyer at Rowdy G. Williams Law Firm.
Complete the brief contact form provided at the bottom of this page or give our office a call at 1-812-232-7400 to schedule your initial consultation today.