Not everyone can qualify to file a Chapter 7 Bankruptcy. The first question we will ask you is whether you have ever filed a Chapter 7 Bankruptcy. If you have, you may not currently be able to file. To be eligible to file a new Chapter 7 Bankruptcy, your previous Chapter 7 Bankruptcy must have been filed more than eight years ago.
If you’ve never filed a Chapter 7 Bankruptcy, or more than eight years has passed since your previous Chapter 7 Bankruptcy, you must still pass the Means Test. In 2005, Congress dramatically changed bankruptcy laws. One of the largest changes to the bankruptcy laws was the creations of the Means Test. The Means Test determines whether individuals or families are capable of repaying some or all of their debt. This determination is made by examining your average monthly income and comparing it to the median income for your state. If your income is below the median, you will automatically pass the Means Test and qualify to file a Chapter 7 Bankruptcy. If your household median income is greater than the state median, then you will not automatically qualify to file a Chapter 7 Bankruptcy. However, just because you are above median, does not mean that you cannot file a Chapter 7 Bankruptcy. An experienced bankruptcy attorney will be able to examine your monthly expenses and determine whether you are able to pass the Means Test even though your monthly income is above median.
Generally, if you cannot pass the Means Test, you will be required to file a Chapter 13 and enter into a five year repayment plan with your unsecured creditors. The U.S. Department of Justice offers further information regarding the Means Test here.
Many people do not want the burden of a lengthy Chapter 13 Bankruptcy. It is imperative that you retain and experienced bankruptcy attorney that knows how to correctly prepare the Means Test in a manner that is most beneficial to you. An experienced bankruptcy attorney may also be able to get you to qualify for a Chapter 7 even if you do not pass the Means Test. In fact, there are some circumstances where the Means Test can be excluded and you may file a Chapter 7 Bankruptcy regardless of your current monthly income.
In our next blog, we will be discussing situations which may exclude you from the Means Test.