Any person planning to file chapter 7 bankruptcy is required to undergo a means test. Basically, means test is an income-based evaluation procedure that determines whether or not a particular bankruptcy petitioner is truly worthy of a discharge from his/her debt obligations under chapter 7 bankruptcy.
The bankruptcy means test – What does the law state?
Chapter 7 bankruptcy petitioners are required to submit Bankruptcy Form 22A (Statement of Current Monthly Income and calculations). It is mandatory for a debtor to fill-in the form with correct income and expense information. Debtors should provide their personal financial details like present monthly income in the form. Information such these are sourced from their personal records. However, other necessary information are sourced from the Internal Revenue Service (IRS) and the Census Bureau.
Chapter 7 bankruptcy – Who all are eligible to apply?
One of the primary goals of designing chapter 7 bankruptcy is to help people with no proper means to repay their debts get relief from their financial obligations. However, prior to the amendments made to the bankruptcy code, there were little limitations for those chapter 7 bankruptcy petitioners who wanted to get relief from their credit card debt, personal loans, medical bills and other unsecured line of credits (ULOC).
Bankruptcy means test – The standard procedure
As far as means test under chapter 7 bankruptcy is concerned, the standard procedure for the same is completed in two steps:
® Median Income – The first and foremost thing that’ll be done in a means test is to weigh your income against the median income applicable in your state for a person with a family size that is same as yours. However, your median income may vary based on the location in which you reside and so, it is better to consult a local bankruptcy lawyer to find out whether or not you are eligible to file chapter 7 bankruptcy in your state.
In case your median income is more than the permissible limit allowed in your state, then that doesn’t imply that you are altogether ineligible to file chapter 7 bankruptcy. It just triggers another round of step in the means test.
® Financial health – This second step is pretty much complex as compared to the previous one. Here, a single step is broken down in to smaller pieces that’ll help in to calculate your disposable cash at hand and all the unsecured debt obligations that you have in your name. As per the IRS guidelines, your disposable income will be evaluated by deducting the allowable expenses from your total income.
You’ll be considered eligible to file chapter 7 bankruptcy, only if your predicted disposable income for the upcoming 5 five years is below $6,000 or $100/month. On the other hand, if your disposable income is in excess of $10,000 for the next 5 years, then you won’t qualify for a discharge from your debts under chapter 7 bankruptcy. In this case, the court may grant you a discharge, provided you can come up with special circumstances or requirement.
Due to the complexity of bankruptcy procedures, it is always advisable that you work with a proficient bankruptcy attorney to fight your case. This is because professionals like these are well-equipped to navigate bankruptcy proceedings much more successfully than any other layman.