What is the Chapter 7 Means Test?

Individual debtors can choose to file for Chapter 7 or Chapter 13 bankruptcy, depending on their unique financial circumstances. Many people prefer Chapter 7 bankruptcy because it allows debtors to start anew by liquidating their assets and removing much of their debt. Yet, not everyone is eligible for Chapter 7 bankruptcy.

In order to file for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code, you must meet a “means test.”

The means test states that a debtor usually cannot file for Chapter 7 bankruptcy if his or her monthly income is less than the state median. In California, the state median income for single income earners is $47,683. The median income for a family with two people is $61,539, for a family with three people, it is $66,050 and for a family with four people, it is $74,806. These numbers change frequently, so please check with an attorney or with the U.S. Department of Justice to find out if your family meets the California state median income.

If a debtor’s income is more than the state median, he or she may still be able to file for Chapter 7 bankruptcy if the filing is not considered “abusive” under the Bankruptcy Code.

The court will determine that a filing is abusive if the debtor’s aggregate current monthly income over the last five years is more than $11,725, or more than 25 percent of his or her “nonpriority unsecured debt” and at least $7,025. The debtor will have a chance to overcome this finding by showing that he or she had special circumstances that justified the difference.

A debtor who does not meet the Chapter 7 means test can still file for Chapter 13 bankruptcy. A bankruptcy lawyer can help you determine if you qualify for either type of bankruptcy and help you start down the path toward financial recovery.

Source: United States Courts, “Liquidation Under the Bankruptcy Code,” Alternatives to Chapter 7.

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