Chapter 7 Means Test
You must pass the Chapter 7 means test or qualify for an exemption in order to file this type of personal bankruptcy. Chapter 7 bankruptcy can provide welcome relief from unmanageable bills and excessive debts. However, you need an experienced Chapter 7 lawyer to walk you through the means test. Call the Law Office of Diane Anderson today at (530) 626-6441 for a consultation.
Chapter 7 Means Test Eligibility
You must show that you are eligible for Chapter 7 bankruptcy by passing the means test. A means test assesses your income and determines if it is low enough to file Chapter 7 liquidation bankruptcy. The means test is a formula designed to ensure higher wage earners cannot completely wipe out their debts through Chapter 7. Instead, high wage earners must file Chapter 13 to reorganize and repay their debts. The Chapter 7 means test assesses your income and allows you to deduct reasonable expenses, such as your mortgage. First, your current monthly income is calculated by averaging your income over a six month period. Then, you determine your disposable income by deducting expenses for your health and welfare, including:
- Involuntary deductions (such as union dues, uniform costs, and mandatory retirement plans)
- Insurance (such as health, short- and long-term disability, and life)
- Secured debt payments (such as your mortgage and car loan)
- Court ordered payments (such as alimony and child support)
- Child care expenses
- Health care
- Care of elderly, a disabled child, or a chronically ill person
- Charitable contributions
All expenses deducted from your income must be “reasonable.” Reasonableness is determined according to state and local averages.
Exemptions to the Chapter 7 Means Test
Certain situations result in automatic exemption from the Chapter 7 means test. For example, if your debts are not primarily consumer debts, you may be exempt. Also, if you are a disabled veteran and your debt was incurred primarily during active duty, you may be exempt. Some people may have income that is so low, they are exempted from the Chapter 7 means test. This is determined by comparing your household income to the median income in your state. If your income is less than the median income according to size, then you may automatically qualify for Chapter 7 bankruptcy. It’s important to note that the median income in each state changes annually. The California median income:
- 1-person household – $47,798
- 2-person household – $62,009
- 3-person household – $66,618
- 4-person household – $75,111
- 5-person household – $83,211
- 6-person household – $91,311
- 7-person household – $99,411
- 8-person household – $107,511
- 9-person household – $115,611
- 10-person household – $123,711
If your average monthly income is less than $3,983, then you automatically qualify for liquidation bankruptcy without going through the Chapter 7 means test. However, if your average monthly income is over $10,309, then you don’t automatically qualify. An experienced Chapter 7 bankruptcy lawyer can help you evaluate your income level and determine if you need to take the Chapter 7 means test.
Chapter 7 Means Test Forms
In order to determine if you qualify for Chapter 7 bankruptcy with the means test, you must complete several forms, including:
- 122A-1 – This is a statement of your current monthly income and determines whether your income is below the median income of your state.
- 122A-2 – This form assesses your income if it is over the median income by deducting allowable expenses.
- 122A-1Supp – This form is a statement of exemption that may be completed by some members of the military and other qualifying individuals.
We Can Help You With the Chapter 7 Means Test
Before filing for bankruptcy, you must determine if you are eligible for Chapter 7 liquidation. We can help you with the Chapter 7 means test and filing necessary forms. Call the Law Office of Diane Anderson today at (530) 626-6441 for more information.