If you have considered filing Chapter 7 bankruptcy, you have likely heard about the Means Test. The purpose of the test is to determine whether or not you can afford to pay off your debts. The courts determine eligibility through the analysis of income, payments, and expenses. If they find that you can afford to repay your debts, you will be unable to file for Chapter 7 bankruptcy. Instead, you will be instructed to file for Chapter 13 bankruptcy.
The underlying purpose of the means test is to restrict individuals with high earnings from discharging their debts in Chapter 7 bankruptcy, rather than paying them off through Chapter 13. Those who file Chapter 7 do lose their nonexempt possessions but do not have to explicitly repay debts, which is why many favor it over a Chapter 13, where debt is restructured. The means test can be relatively straightforward or complicated depending on the applicant’s financial status. Here is what the means test entails.
Determining Income
Phase one of the means test is determining your income. There are many means test calculators available to those who would like to get a general idea of whether or not Chapter 7 bankruptcy is a viable option. The test compares your current income to the median income in your state for your household size. If your income is less than the median, you are permitted to file for Chapter 7. If not, you must subject your finances to further calculations to determine eligibility.
Required Payments as Expenses
The next phase for those who make more than the state median is to calculate required payments and expenses. This is when it can get complicated. After subtracting the allowed expenses, you must determine if you have enough disposable income left to pay off unsecured debts.
If your income is still equal to or greater than the state median, you will only be able to file for Chapter 13 bankruptcy. As someone filing for Chapter 13 with an income higher than the state median, you will have five years to repay debts compared to the three years allowed for those under the state average.
Reach out to E. Orum Young Law Offices if you are unsure about which form of bankruptcy is most appropriate for you or your small business. We have handled the most bankruptcies in 35 years than any other bankruptcy firm in Northeast Louisiana. With over 20,000 cases filed, there is a reason why the people of Louisiana trust us to help them through their tough time.
Our dedicated attorneys can make you aware of the most appropriate bankruptcy for you and serve as your legal counsel throughout the process. Our Trial Guarantee ensures that we will take your case to trial per your request. Contact us today for a free case evaluation.
