The Chapter 7 Bankruptcy Means Test

If you have ever considered filing for Chapter 7 bankruptcy protection, you probably have heard about the “means test.” The means test is a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. Debtors with higher incomes who fail the test may not qualify for Chapter 7 protection, but they can still use Chapter 13 to repay a portion of their debts. A Maryland bankruptcy lawyer can tell you how the means test applies to your situation.

How the Chapter 7 Means Test Works

The means test deducts specific monthly expenses from your current monthly income (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly disposable income. The higher your disposable income, the less likely it is that you will qualify for Chapter 7 bankruptcy.

You must first determine if your income is more or less than the median income in your state. If you earn more than the median, you must figure out whether you would have enough left over, after subtracting certain expenses, to repay some of your debt. On the other hand, if your current monthly income is less than the median income for a household of your size for your state, you pass the means test. There is no need to complete the rest of the test, and you can file for Chapter 7.

Median income levels vary by state and household size. In addition, each county and metropolitan region has different allowed amounts for categories of expenses.

Passing the means test determines that you can file for Chapter 7, but not necessarily that you should file. Contact a Maryland bankruptcy attorney for more information about whether you should file for bankruptcy protection.