What Is the Chapter 7 “Means Test,” and How Does It Work?
Not everyone is eligible to file for Chapter 7 bankruptcy. To qualify, some people are required to pass a “means test.” This test is required to determine eligibility if your income is above the median in Arizona for your family size and if your debts are mainly consumer debts.
If you are facing debt issues, contact Hilltop Law Firm at (602) 466-9631 for skilled legal assistance.
What Are the Benefits of Filing for Chapter 7?
Chapter 7 bankruptcy is a potential solution for obtaining relief from overwhelming debt. If you are eligible, it allows you to discharge unsecured debts and move forward with a fresh financial start. It can protect you from repossessions, garnishments, and other creditor collection efforts during the bankruptcy process. Once bankruptcy is completed and your debts have been discharged, you can start taking steps to rebuild your credit. Chapter 7 may be the best option if you are struggling with credit card, medical, and other unsecured debts.
What Is the Means Test?
The means test is a formula to determine whether you have the necessary funds for repayment of your debts. It’s designed to determine whether debtors are eligible to have their debts discharged under Chapter 7 or whether they should be required to file under Chapter 13 or another chapter of the Bankruptcy Code. The purpose of the test is to compare a debtor’s monthly income and expenses to determine whether a discharge of debt would constitute an abuse of the Chapter 7 provisions.
How Is Disposable Income Calculated for the Means Test?
Generally, if your average monthly gross income for the previous six months is below the median income in Arizona for your family’s size, or if your debts are not primarily consumer debts, you are eligible to file for Chapter 7 bankruptcy without passing the means test. If your average monthly income is above that level and your debts are primarily consumer debts, you will need to pass the means test calculation to determine your “disposable income.” This is done by subtracting the following from your total income:
- Daily household expenses (food, supplies, clothing, etc.)
- Healthcare costs (for yourself and family members)
- Housing and utilities (rent or mortgage and utility bills)
- Taxes (based on your filing status, dependents, and deductions)
- Transportation expenses (gas or public transportation)
- Vehicle payments (car loan or lease payments)
- Insurance premiums (including health, life, disability, etc.)
- Childcare costs (non-educational)
- Court-ordered payments (such as child support or alimony)
- Miscellaneous expenses
What Are the Consequences of Failing the Means Test?
If you fail the means test because your disposable income is too high, there is a presumption of abuse of the Chapter 7 provisions. However, you may still be eligible to file for Chapter 7 if the calculations do not accurately represent your current situation. For example, if you have lost your job or are earning less than you were before. Otherwise, if you are unable to rebut the presumption of abuse, the court will typically allow a certain amount of time within which to convert your bankruptcy case to Chapter 13, or it will be dismissed.
Consult a Bankruptcy Attorney
Our experienced Arizona bankruptcy attorneys offer personalized guidance through debt relief plans. We can help you determine whether you are eligible to file for Chapter 7 bankruptcy, explain the regulations, and help you decide whether it is the best solution for you.
At Hilltop Law Firm, we have extensive experience in bankruptcy and consumer debt relief. We provide compassionate legal support and tailor solutions to fit the needs of each client. If you are considering filing for Chapter 7 bankruptcy, contact us at (602) 466-9631 to schedule a free initial consultation with no obligation. We’re here to help.