When it comes to Chapter 7 bankruptcy , the Chapter 7 means test may come into play. If your annual household income is below the median income for your household size, the means test will not apply, and you may file a Chapter 7 bankruptcy. However, if you are a higher-income filer, you must pass the test.
The purpose of a Chapter 7 means test is to determine whether you can pay back some of your unsecured debts by filing a Chapter 13 bankruptcy.
Exemptions from Means Test
You may be exempt from the Chapter 7 means test if you meet one or both of the following criteria:
- Your debts are not primarily consumer debts.
- You are a disabled veteran, and you incurred your debt primarily while you were on active duty in the military service.
Determining Median Income
If your household income is below your state’s median income for your household size, you are exempt from the means test and may file a Chapter 7 bankruptcy.
Your household income is determined by averaging your monthly income over the previous six calendar months. That number is then multiplied by 12 to determine your annual household income. Currently the annual median household income thresholds range from $37,081.00 for one-member households to $106,933.00 for ten-member households.
If your household income exceeds the median income threshold for a household of your size, you must go through the Chapter 7 means test.
Completing the Chapter 7 Means Test
The Chapter 7 means test involves calculating all of your income and expense information for a given year. For purposes of the means test, “income” includes all of the following:
- Employment income
- Business income
- Rental income
- Interest and dividend income
- Retirement plans (e.g., 401(k) and 403(b) retirement plans)
- Money paid by others toward household expenses
- Unemployment income
After you have assembled all of your income and expense information, you must then subtract out all of your allowed expenses. This final number determines the amount of income that you have available under the bankruptcy law to pay your unsecured creditors (if any) via a Chapter 13 bankruptcy plan.
Contact a Bankruptcy Lawyer Today to See if You Must Complete a Chapter 7 Means Test
Bankruptcy law is very complex. We can assist you with determining whether or not you must complete a Chapter 7 means test.
It is important to note that just because you are able to file a Chapter 7 bankruptcy does not necessarily mean that you should do so. In order to evaluate and consider all of your available options under the law, taking into account your own personal circumstances and finances, contact us today.