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What is the Chapter 7 means test?

On Behalf of | Jan 6, 2021 | Bankruptcy

When you choose to seek bankruptcy protection in Kentucky, one of the more important decisions accompanying this choice will be the chapter you choose to file under. You might immediately see some of the benefits of filing under Chapter 7 (by far the most popular form of personal bankruptcy). There is good reason for this; a Chapter 7 case allows for the discharge of certain debts. Yet first, you must qualify for this benefit.

“The Chapter 7 means test” details the qualifications for filing a Chapter 7 bankruptcy. If you fail to meet these requirements, that does not necessarily mean that you cannot seek personal bankruptcy protection. Instead, the court will typically convert your petition over to a Chapter 13 case.

Reviewing your aggregate monthly income

According to the website for the Federal Judiciary, the first step in the means test is to evaluate your aggregate monthly income. The court compares yours to the median for your particular demographic in the state. If it is below the median amount, you automatically qualify to file under Chapter 7. If it comes in above that amount, then you must proceed on to the second step of the means test.

Rebutting the presumption of abuse

That second step involves projecting your monthly income out over a five-year period (less certain allowed expenses). If that amount is above either $12,850 or 25% of your nonpriority unsecured debts (given that those debts exceed $7,700), then the court presumes an attempt to abuse the privileges afforded under Chapter 7 and disqualifies you from filing for this type of bankruptcy.

Your income not meeting these criteria may not mean that you completely fail the means test, however. You can attempt to prove to the court that your financial situation merits special consideration for filing under Chapter 7.