The Means Test and Your Eligibility for Chapter 7 Bankruptcy

Filing Bankruptcy in Little RockOne eligibility requirement of Chapter 7 bankruptcy is to pass the means test. This test checks your income by comparing it to the size of your household. If you receive too much money or more than enough to cover the national and local standards for living expenses, you may not be eligible to file a Chapter 7 bankruptcy.

No Ability to Pay Debt

The means test is designed to limit the filing of Chapter 7 bankruptcy only to those who cannot pay their debts. Bankruptcy lawyers in Little Rock say the test calculates your ability to pay debt or seeks to determine if you have the means to pay back some of the money you owe to the creditors. If it is found out that you have more disposable income, you may not be eligible for Chapter 7.

Your State’s Median Income

Whether or not you’ll pass the means test depends on your income, as well as your state’s median income level. If your income is less than the median, you pass the test and you can file for Chapter 7. It is important to refer to your state’s median income for a household size that is the same as yours. If you are a family of three, for instance, know the median income for a family of that size in your state.

The Need for Credit Counseling

Passing the means test, however, does not automatically allow you to file for Chapter 7. You still need to attend mandatory credit counseling, with the judge having the discretion to dismiss the case with a belief that you are not fully eligible for this type of bankruptcy.

If you income is above the median, you can file for Chapter 13 bankruptcy instead. This requires you to pay a portion of your debt by making monthly payments, with a court-monitored budget. The thing is, many debtors prefer Chapter 7 because it requires no debt repayment. It is best to consult a bankruptcy lawyer to help you in filing and make the entire process a little less stressful.