Chapter 7 Bankruptcy: What You Must Know About “The Means Test”

When going through bankruptcy, most people prefer chapter 7 because it is better able to wipe out debts completely, rather than just restructure them so they can still be repaid. In order to qualify for a chapter 7 bankruptcy, however, you must pass ‘the means test’ which looks at your income level. This test is intended to prevent high-income filers from being able to wipe out debts that they could repay with a little restructuring.

Understanding the Means Test

The means test is fairly complicated, and it changes from state to state, which is why it is so important to work with a qualified attorney whenever applying for chapter 7 (or any type of) bankruptcy. In general, however, the means test will look at your current monthly income, which is calculated as an average over the past six months before applying for bankruptcy. They will then take your current average monthly expenses, and subtract them from your income. This will determine your disposable income. As you might expect, the higher your disposable income is, the less likely you will be able to qualify for chapter 7 bankruptcy.

Median State Income

One of the easiest ways to pass the means test is to be making less than the median state income. If you are in the bottom half for state income, you automatically pass. This is not just a straight number, but rather an income amount based on the size of your family. Looking at your income compared to the state median will be the first thing your attorney does.

Calculating Debt Levels

If you make more than the median state income, the courts will determine how much debt you owe, and whether or not you will be able to repay it. For chapter 7 bankruptcy, the debt must all be personal debt, not business debt. The courts will require proof of all debts so they can compare it to the disposable income. They will then use this information to decide if you qualify for chapter 7 bankruptcy.

Reviewing Your Situation

The means test is quite complex, and that is just the first step in the bankruptcy process. Going through it without an attorney is not only difficult, but it is unwise as well. An attorney like those at Arnold, Wadsworth & Coggins can help ensure everything is in order and all your debts and other financial responsibilities are clearly identified so the courts can approve your means test.

We are here to provide you with the guidance you need to get you back on track following financial difficulties. If you are considering any form of bankruptcy, please give us a call today!

Written by Arnold Wadsworth Coggins

Arnold, Wadsworth & Coggins Attorneys is a premier Utah law firm serving the Wasatch Front in the areas of family law, bankruptcy, criminal law, and civil litigation. Our attorneys provide clients with exceptional legal representation and personal attention. With over 35 years of trial practice and litigation experience, we bring big firm expertise at affordable rates