Deciphering the Chapter 7 Means Test
12:41 AM
When filing for Chapter 7 Bankruptcy, most if not all of your assets are ordered sold by the Courts. When Trustee sells these assets, the proceeds are used to repay creditors. In other words, Chapter 7 Bankruptcy often means losing the assets you own.
If you file for Chapter 7 Bankruptcy, your application will be subject to a Means Test. This simply means the courts will examine whether or not you are eligible for Chapter 7 or Chapter 13 bankruptcy. Here, we outline the points that relate to the Chapter 7 Means Test.
In terms of the Courts, the Chapter 7 Means Tests encompasses calculating the following:
1. The debtor's average income of the last 6 month. 2. Then, the average personal income is compared with the per head average income of the state. Suppose, the median personal income of a person is $20,000. Now, if the debtor's personal income is below $20,000, then Chapter 7 can be applied to him/her. And if the debtor's income is greater than the median ($20,000) then further steps of means test are carried out.
If your average personal income is more than the State's median, then the Chapter 7 Means Test will be expanded. These extra processes will look at the following:
1. The courts will take your income and subtract allowable expenses. This will result in a disposable income figure that the courts will multiply by 60 in order to obtain a 5-year figure. 2. The second part will compare your five-year income against the State's median 5-year income. If your amount is greater than the State's median by $10,000 or more, then you will not qualify under the Chapter 7 Means Test (although you will likely qualify under Chapter 13).
Additionally, the disposable personal income should be 25% unsecured or non-priority debts otherwise or else you have to go for chapter 13.
You can complete these calculations yourself before sitting down with a bankruptcy trustee or professional, who is compensated on your choosing to file for Chapter 7 or Chapter 13 bankruptcy. However, if your own calculations come close to the State's median, you should definitely seek professional assistance as they will need to complete these calculations anyway.
As well, you will want to review the impact that Bankruptcy will have on your life in the short- and long-term. If you have the means to repay your debt, you will want to explore such options before causing irreparable damage to your financial life.
If you file for Chapter 7 Bankruptcy, your application will be subject to a Means Test. This simply means the courts will examine whether or not you are eligible for Chapter 7 or Chapter 13 bankruptcy. Here, we outline the points that relate to the Chapter 7 Means Test.
In terms of the Courts, the Chapter 7 Means Tests encompasses calculating the following:
1. The debtor's average income of the last 6 month. 2. Then, the average personal income is compared with the per head average income of the state. Suppose, the median personal income of a person is $20,000. Now, if the debtor's personal income is below $20,000, then Chapter 7 can be applied to him/her. And if the debtor's income is greater than the median ($20,000) then further steps of means test are carried out.
If your average personal income is more than the State's median, then the Chapter 7 Means Test will be expanded. These extra processes will look at the following:
1. The courts will take your income and subtract allowable expenses. This will result in a disposable income figure that the courts will multiply by 60 in order to obtain a 5-year figure. 2. The second part will compare your five-year income against the State's median 5-year income. If your amount is greater than the State's median by $10,000 or more, then you will not qualify under the Chapter 7 Means Test (although you will likely qualify under Chapter 13).
Additionally, the disposable personal income should be 25% unsecured or non-priority debts otherwise or else you have to go for chapter 13.
You can complete these calculations yourself before sitting down with a bankruptcy trustee or professional, who is compensated on your choosing to file for Chapter 7 or Chapter 13 bankruptcy. However, if your own calculations come close to the State's median, you should definitely seek professional assistance as they will need to complete these calculations anyway.
As well, you will want to review the impact that Bankruptcy will have on your life in the short- and long-term. If you have the means to repay your debt, you will want to explore such options before causing irreparable damage to your financial life.
About the Author:
Chris Blanchet is the author of the Personal Finances e-book Help Fix My Finances, which provides the basis for the Members Only website of the same name. Be sure to visit his Debt-Free Blog.
You can leave a response, or trackback from your own site.