What Is Chapter 7 Bankruptcy Means Test?

Filing for Chapter 7 bankruptcy can be a powerful device for dealing with tremendous debt

. But it isn't available to everyone. There are a number of situations in which you will not be allowed to file Chapter 7 bankruptcy.

What is Chapter 7 Bankruptcy Means Test? The Chapter 7 means test is a procedure used to determine whether or not the consumer should have enough money available to make some minimal payment to creditors in a Chapter 13 bankruptcy plan. It is designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. Under the new bankruptcy law that was effective in October of 2005, a person who wishes to file under Chapter 7 must meet certain requirements that make them eligible to file chapter 7 based on a means test. Under the means test, if your present monthly income is below the median income in your state, you are eligible to file for bankruptcy under Chapter 7. Only bankruptcy filers with mainly consumer debts, not business debts, should take the means test. If your income is high and you fail the means test, you may use Chapter 13 bankruptcy to pay off a portion of your debts, but can not use Chapter 7 bankruptcy to eliminate their debts altogether.

How does the means test work? The means test was formulated to limit the use of Chapter 7 bankruptcy to those who actually do not have income or money to pay their debts. It works by deducting precise monthly expenditures from your current monthly income, your average income above the six calendar months before you file for bankruptcy, to arrive at your monthly disposable income. If your disposable income is higher, you are more likely not allowed to use Chapter 7 bankruptcy.

Under the new rules, the first step in figuring out whether you can file for Chapter 7 bankruptcy is to measure your current monthly income against the median income for a family of your size in your state. Your current monthly income is your average income over the last six months before you file. If your income is below or equal to the median, you can file for Chapter 7 bankruptcy. If your household income exceeds the state median, the means test computations get extensively more complex. You must determine whether you have enough income left after paying your monthly expenses, to pay off at least a portion of your unsecured debts, like credit card bills.

The government form that must be completed to discharge the bankruptcy A debtor must enter income and expense information onto the appropriate form (i.e., Form 22A or Form 22C) and then make calculations using the information entered. Some of the information needed to complete these forms, such as a debtor's existing monthly income, come from the debtor's own personal records. However, other information needed to complete the forms comes from the Census Bureau and the Internal Revenue Service (IRS). For more support on how to file bankruptcy, visit www.onlinebkassist.com.

by: Steve

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