Before you can file for Chapter 7 bankruptcy, you must pass something called the means test. This test determines whether your income is low enough for you to qualify to file Chapter 7 bankruptcy under the law. If your income is too high to pass the means test, you will have to use Chapter 13 bankruptcy to restructure and repay a portion of your debts instead of wiping out your debt completely.
You may still be able to pass the means test with a relatively significant monthly income if you have a lot of expenses like high mortgage and car loan payments, extensive tax debt and other expenses.
How Does It Work?
The idea behind the means test is to limit Chapter 7 bankruptcy filing to individuals who truly can’t pay back their debts. To do this, it takes your current monthly income (the average income you have made over the previous six calendar months before you filed for bankruptcy) and subtracting specific monthly expenses from it. This will provide the court with your monthly disposable income. If you have a high disposable income level, you are less likely to be able to file for Chapter 7 bankruptcy.
Do I Need To Take the Means Test?
Before you start figuring out your monthly disposable income, make sure you need to take the means test. Your bankruptcy attorney will look at your income and determine if it is more or less than the median income for a household of your size in your state. If your current monthly income is less than the median income, you pass the means test automatically and can file for Chapter 7. If your monthly income is more than the median income, you will need to pursue the means test further.
Do You Have Enough Disposable Income?
For those whose monthly income is more than the median for a household of their size within their state, things get more complicated. You must subtract allowed monthly expenses from your current monthly income, and then you must determine whether that amount is considered enough to pay off at least a portion of your unsecured debts. Your attorney specializing in bankruptcy in Georgia can help to walk you through this process, but if you are curious, you could try using an online means test calculator.
If you do pass the means test, it means that you can file for Chapter 7— but that does not necessarily mean that you should. We strongly encourage you to talk with Morgan & Morgan to be certain that Chapter 7 is the right decision for you and your finances.