The Bankruptcy Means Test
Posted on Jul 23, 2019 8:00am PDT
Are you considering filing a
Chapter 7 bankruptcy? If so, it’s important for you to know that not all debtors
qualify for a Chapter 7. Why is this? Because Chapter 7 bankruptcy is
reserved for debtors with a very low income. If you have a substantial
income and at least some disposable income to repay your debts, you may
not qualify for a Chapter 7 bankruptcy and may have to file a Chapter
13 instead.
In order to determine if you qualify for a Chapter 7 bankruptcy, you will
need to take what’s called the
bankruptcy “means” test. This test takes a look at your monthly income
and household size. If your income falls below the median income for a
household of your size in California, you pass the “means”
test. You’re done and you can file a Chapter 7 bankruptcy.
If your income exceeds the threshold, you may have to file a Chapter 13
bankruptcy, which allows debtors to pay off a portion of their debts over
a 3 to 5-year period. Ultimately, your eligibility for a Chapter 7 depends
on your monthly income, your debts, and if you have any disposable income
left over to repay your debts. A bankruptcy lawyer from our firm can help
you determine if you qualify for Chapter 7 if you have a high income.
Do I Have to Be Penniless to Pass?
To pass the bankruptcy means test, you do not have to be broke or penniless
to qualify for Chapter 7. As a matter of fact, a debtor can earn a significant
monthly income and still pass the bankruptcy means test if they have a
lot of financial obligations, such as a car payment, a mortgage, taxes,
and other hefty debts.
The purpose of the bankruptcy means test is to reserve Chapter 7 bankruptcy
for debtors who truly cannot afford to pay off their debts. If you do
not pass the Chapter 7 means test, you will have to file a Chapter 13
bankruptcy instead. With a
Chapter 13, you are placed on a strict, court-monitored repayment plan that lasts
3 to 5 years depending on the facts of your case.
To learn more about Chapters 7 and 13 bankruptcies and which one is right for you,
contact Arnold Law Group, APC to request a case evaluation.