If you are considering Chapter 7 bankruptcy, the first thing you need to know is if you are eligible. You do this through the Chapter 7 bankruptcy means test. The test determines whether your income is low enough to file for Chapter 7. You don’t have to be very low income to take advantage of the benefits of Chapter 7 – if you make high income but also have a lot of expenses, you may still qualify.
The Means Test
The means test deducts specific monthly expenses from your “current monthly income,” which is determined by your average income over six months prior to filing. This brings you to your disposable income. The lower your disposable income, the more likely you will be able to file for Chapter 7.
Step one is to determine whether your current monthly income is less than the median income for a household of your size in your state. If it is, you pass and can file for Chapter 7. If it is not, you must continue the means tests.
Next, you must determine if you have enough disposable income left after paying allowed expenses to pay off some of your unsecured debts, like your credit card bills. If your disposable income is too high, then you fail the means test.
Know this: just because you pass the means test and can file Chapter 7, that doesn’t mean that you should. Bankruptcy is a big step and you should discuss all your options with a bankruptcy lawyer before jumping in head first.