How the Means Test in a Chapter 7 Bankruptcy Work—Part One

Means Test in a Chapter 7

It’s been a requirement under the federal bankruptcy laws since 2005, but most people still don’t have much understanding of what the “means test” is and how it works. When you choose to seek protection in a bankruptcy filing, you must now qualify to discharge debts in a Chapter 7 proceeding, demonstrating to the bankruptcy court that you lack the means to repay creditors over a three to five year period. How is that calculated? What will the bankruptcy court consider when assessing your ability to repay your obligations?

The Median Income Test

The first thing to understand about the means test is that the formulas applied vary from state to state. The initial criteria for determining your eligibility is what is known as the “median income test.” In fact, if you meet that test, you qualify and don’t need to look at any other factors. The dollar amount for the median income test is based on annual figures determined by the U.S. Census.

Under the median income test, if your “current monthly income” is less than the median family income—the midpoint, not the average—in your state, you automatically qualify. Calculating your current monthly income can, however, be a bit challenging. It includes income from all sources over the last six months, including wages and employment, alimony, child support, unemployment compensation, investments and insurance benefits. That total number is then divided by six to determine whether you qualify.

Just because you don’t meet the median income test, however, does not mean you won’t qualify for a Chapter 7 bankruptcy filing. We’ll discuss other ways you can qualify in the next part of this series.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I provide a free initial consultation to anyone with questions or concerns regarding a bankruptcy filing. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.

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