Filing for a Chapter 7 bankruptcy requires meeting certain criteria. One of the ways to determine whether or not you are a candidate for filing Chapter 7 is by taking a means test. A means test determines if your income is low enough to file for Chapter 7. Filers who have higher incomes and fail the means test may qualify for filing a Chapter 13 bankruptcy. The difference being that debt is repaid using a payment plan rather than receiving a full discharge of debt as provided in a Chapter 7.
Passing a means test does not necessarily mean you have a small amount of income. Those with a decent monthly income can still qualify for Chapter 7 if they have a large amount of debt. The below will provide more information about the means test and how it applies to filing for Chapter 7 bankruptcy.
What The Means Test Involves
The purpose of the means test for Chapter 7 filers is to determine who cannot pay their debts. The means test is primarily taken by those with a large amount of consumer debt. The process involves deducting of specified monthly expenses from your monthly income. Your income is then calculated by averaging the past six months worth of earnings up until the point of your filing for Chapter 7. What is left is your disposable income. If your disposable income is high, you may not qualify to use Chapter 7 bankruptcy.
Passing The Means Test and Chapter 7 Filing
In order to pass the means test, your current monthly income must be less than the state median income for your household. This qualifies you for filing for Chapter 7. However, if your income is above the state median, it must be determined whether your disposable income can pay a portion of your unsecured debt. Failing to pass the means test means that your disposable income met a specified amount that disqualifies you from filing a Chapter 7 bankruptcy.
Failing to pass the means test may still qualify you for filing a Chapter 13 bankruptcy. A Chapter 13 bankruptcy requires repayment of your debt using a payment plan which spans over a 3 to 5 year period. The court determines what your monthly payment will be. While most bankruptcy candidates prefer filing for Chapter 7 to eliminate all debt, a Chapter 13 is still a viable option for resolving debt issues.
To learn more about filing for Chapter 7 bankruptcy in South Florida, contact us today to request a free consultation. We can help you understand your options and guide you through the bankruptcy process.