What Income Is Used to Figure the Chapter 7 Means Test?
- Chapter 7 is also known as "debt liquidation," since if the court approves your petition, most of your debts are eliminated. For this reason, Chapter 7 is the bankruptcy chapter with the most requirements for eligibility and is also the filing that affects your credit score for a longer time (around 10 years). Also, with Chapter 7, the court sells most or all of your assets and property in order to pay as many of your creditors as possible.
- To be eligible for Chapter 7, you must meet several requirements that the Bankruptcy Code has established. Any individual who desires to file for Chapter 7 must receive credit counseling within 180 days before filing. You also need to pass the means test to be eligible for filing. The means test is a test that compares your income to the average income in your state. For you to be eligible, your income must be lower than the average income of your state.
- The means test is constituted of two main parts. The first part of this test compares your current income to the income of another family of the same size and establishes whether your income is higher or lower than the other family's. The second part analyzes your disposable income (income after expenses) and establishes whether it is enough or not to pay your monthly debts.
- The means test uses your current income to evaluate whether or not you are eligible to file for Chapter 7. Current income refers to your income over the past six months. This includes your wages, your spouse's wages and any contributions or benefits you receive that help pay for your household expenses. Disposable income is your entire monthly income, including benefits and contributions, minus all of your household's monthly expenses.
- If you pass the first part of the means test, you are already eligible to file for Chapter 7 bankruptcy protection. As of 2010, if your income is higher than your state's average income, you can still qualify for Chapter 7 if, in the second part of the means test, you can show that your disposable income is lower than $182,500. If you do not qualify in either the first or second part of the means test, you may still be able to file for Chapter 13 bankruptcy protection.