Chapter 7 Bankruptcy Test

Means Test

To be able to discharge your bankruptcy by use of Chapter 7, you need to first go through the bankruptcy means test. Basically, Chapter 7 allows you to discharge your bankruptcy by liquidating your non-exempt assets; this cash is then used to settle the debt with the creditor.

Chapter 7 is especially suitable for people who don’t have a steady income, but have non-exempt property. It helps you to eliminate your debts at once. This process normally occurs over a period of a few months; however, during these months, the creditors can’t contact you.

Once you are through with the Chapter 7 bankruptcy test, you will have to complete a session with a credit counselor before you discharge your bankruptcy.

The Chapter 7 bankruptcy test helps in determining whether or not your income is low enough to allow you to file a Chapter 7 bankruptcy.

If your income isn’t low enough, you may have to file a Chapter 13 bankruptcy which allows you to pay your debt in monthly installments spread over a period of time.

However, in certain circumstances, debtors can be allowed to file both Chapter 7 and Chapter 13 bankruptcy. This will be by paying part of the debt by using Chapter 13 first then clearing the remainder by use of Chapter 7.

If you have a steady monthly income but you have a lot of expenses to pay, you can still file a Chapter 7 bankruptcy.

The "Test"

The Chapter 7 bankruptcy test works by:

•  first establishing the debtor’s average monthly income
•  then deducting his/her expenses
• after this deduction, the money that remains is then considered the disposable income that can be used to dispense the debt 
• to get your average monthly income, calculate your total income for 6 months then divide this sum by 6 to get the average monthly income
• if your disposable income is high, then you won’t be eligible to file Chapter 7 bankruptcy and may be forced to consider filing Chapter 13.

What Is Median Income?

Before you take the Chapter 7 bankruptcy test;

• first find out what the median income for your state 
• if you earn less than the median income, you definitely qualify to file a Chapter 7 bankruptcy
• if you earn more than the median income for your state
• then take this figure and deduct your expenses
• if the remaining amount is high, automatically, you are not eligible to file Chapter 7 bankruptcy.

In Conclusion:

Remember even if you meet the eligibility requirements, you are not bound to file Chapter 7 bankruptcy. Go through your options and pick the option that will best work for you. You can carry out research or consult with professionals to help you make the right decisions.

On the other hand, if you do not meet the eligibility requirements for filing Chapter 7, you will have to file Chapter 13 and pay your debt in monthly installments for a period of 3-5 years. 

Even if you pass the Chapter 7 bankruptcy test, you cannot file a Chapter 7 bankruptcy if you have discharged your debts using the same method within a period of 8 years.

You also cannot file Chapter 7 if you have a previous case of defrauding your creditors or if your previous Chapters 7/13 have been dismissed.