Triplett McFall Wolfe Law, LLC

What is the Chapter 7 means test?

A Chapter 7 bankruptcy offers you the chance to have many of your outstanding debts discharged, freeing you to use your income to re-establish yourself on firm financial footing. Yet this is a privilege not afforded to all. The federal government wants to ensure that people do not abuse the benefits that Chapter 7 bankruptcy protection offers. Therefore, if you want to file for it, you must first qualify. The qualification standards for a Chapter 7 bankruptcy are established by what is known as "the means test." 

The Chapter 7 means test compares your current income to both that of your demographic in your state as well as the total amount you owe in nonpriority unsecured debts. The first step in the test is to determine your current monthly income (less a few allowed expenses). If that income amount is lower than that of your particular demographic in your state, then you qualify to file under Chapter 7. If it is not, then your net income over the past five years is determined. According to the website for the Federal Judiciary, this amount is then compared to two values: a set dollar amount total and a percentage of your debt. For 2018, those values are $12,850 or 25 percent of your nonpriority unsecured debt. If your aggregate income over five years if greater than either of those amounts, you cannot qualify for a Chapter 7 bankruptcy. 

The option of personal bankruptcy may still not completely be off the table, however. The court may simply insist that you file a Chapter 13 bankruptcy. Many call this "the wage-earner bankruptcy, and it offers similar protections to Chapter 7 under the conditions that you pay off your debts over a period of three to five years. 

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