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Chapter 7 Means Test: What Does it Mean for Bankruptcy?

A Look at the Chapter 7 Means Test and its Role in Bankruptcy.

Those who are considering Bankruptcy should know about Chapter 7 Bankruptcy Means Test. In some cases, an individual who would like to declare Bankruptcy under Chapter 7 is barred from doing so due to ineligibility stemming from the Means Test. The question is whether Chapter 7 Bankruptcy or Chapter 13 Bankruptcy is the right choice for you. Let’s take a closer look at Chapter 7’s Bankruptcy’s Means Test.

Chapter 7 Bankruptcy and the Means Test

File for Chapter 7 Bankruptcy and you will be permitted to discharge (wipe-out) certain debts. In some cases, all of the debts will be dischargeable. This is in contrast with Chapter 13 that forces you to repay a portion of your debts by way of a strict repayment plan. It is clear why most people prefer Chapter 7 Bankruptcy as opposed to Chapter 13. However, in order to qualify for Chapter 7, you have to pass the Means Test.
The application of the Chapter 7 Bankruptcy Means Test to one’s case mandates the candidate for Bankruptcy shows proof of monthly income. The individual’s income from every source must be documented in full. These sources range from one’s salary to hourly wages, child support, spousal support, rental property income, pensions, retirement accounts, royalties, annuity payments, dividends disability benefits, unemployment benefits, and beyond.

Chapter 7 Means Test: The Initial Step

The first step of the Chapter 7 Means Test is fairly direct. If the calculations show your current monthly income is lower than the state’s median for your demographic, you are likely eligible for a Chapter 7. However, if your income exceeds that of the state’s median for your demographic, the second step of the Chapter 7 Means Test will be applied.

Chapter 7 Means Test: Step 2

The second step of the Chapter 7 Means Test involves deducting your expenses from your income to determine your disposable income. If there is enough disposable income you may have to be in a Chapter 13 Bankruptcy case.

What Happens if You Fail the Chapter 7 Means Test?

If you fail the Chapter 7 Means Test, do not panic. You can still file Bankruptcy. However, those who do not pass the Chapter 7 Means Test can often STILL file for a Chapter 7 Bankruptcy. However, some Chapter 13 is typically less preferred but still allows you to normally discharge most of your debt. Yet there is something to be said for the orchestration of a reasonable payment plan as opposed to dodging debt collectors and process servers every single day for years or decades to come.

Considering Bankruptcy? Steven M. Fishman can Help!

If you are having financial troubles, do not give up! There is a light at the end of this dark tunnel. Steven M Fishman is an experienced and knowledgeable Bankruptcy attorney here to offer debt relief so you emerge from a financial disaster with a clean slate. He can help you get a new start in your financial life that ultimately makes you happier, restful, and less stressed. Contact us today at (727) 724-9044 to find out more about the Chapter 7 Means Test and our free no obligation initial consultation.

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