The Means Test in Chapter 7 Bankruptcy Filings

June 1, 2020 By: Carrie Weir

How the Court Determines Whether You Qualify for Permanent Discharge

Under American bankruptcy law, you can seek to permanently discharge personal debt under Chapter 7 or else file for Chapter 13 “debtor’s reorganization,” in which you work with creditors to negotiate arrangements to pay your financial obligations over a three-to-five-year period. If you hope to terminate financial obligations through Chapter 7, though, you must first submit to a “means test,” whereby you demonstrate to the bankruptcy court that you lack the income, assets, or other resources to repay debtors in Chapter 13.

The Chapter 7 Means Test

The means test was added to the U.S. Bankruptcy Code in 2005 as part of an effort to reduce the number of debtors seeking to permanently discharge debt. The test determines your “disposable income” by deducting certain allowable expenses from your monthly income, using figures from the previous six calendar months to make that determination.

If your monthly disposable income is less than the median for a household of your size in your state, you automatically qualify for Chapter 7 and don’t need to complete the remaining portions of the test. If, however, you have disposable income that exceeds the median, then your ability to repay creditors and meet your basic needs will be determined by a number of additional calculations.

As a general rule, while Chapter 7 is available to individuals and businesses, only individuals must submit to the means test.

Note that stimulus payments under the CARES Act do not constitute income for purposes of a bankruptcy proceeding.

Contact an Experienced Rockwall, Texas, Bankruptcy Attorney

At the Law Offices of Carrie Weir, all potential clients are entitled to a free initial consultation. I am currently communicating with clients by phone, text message, and videoconference. To arrange an appointment, contact my office online or call 972-772-3083. I handle Texas personal bankruptcy filings in Rockwall County, Collin County, Dallas County, Hunt County, and the surrounding counties.