Chapter 7 Means Test Explained

by DeLadurantey Law Office, LLC on October 15, 2013

Chapter 7 Means Test ExplainedIn 2005, the Bankruptcy Code was amended. One of the changes was the addition of the “means test” as a requirement for filing a Chapter 7 case. What is the means test? It really isn’t a test, but rather a mathematical formula applied to your individual finances to determine if you are eligible to file for Chapter 7 protection. If you pass the test, you are allowed to file your case. If you fail the means test, your case is given the “presumption of abuse” designation. In order to proceed with your Chapter 7 filing, you have the burden to overcome this designation.

If your income is less than your state’s median income for the applicable household size, or you are a disabled veteran and the debt was incurred while on active duty, the test is not applied and the Chapter 7 filing is allowed.  If your income is greater than the applicable state’s median income and the means test is applied, you are allowed to deduct numerous expenses from your income.  For instance, you can deduct your living expenses, education expenses and other costs. When the deductions have been made, the amount left remaining is multiplied by 60. It the total amount left is less than $10,000 or over $6,000, and it also amounts to 25% or more of the debtor’s non-priority and unsecured debt, the court presumes the filing is an abuse of the system.

If your filing receives a “presumption of abuse” designation, you can challenge it. The debtor has the burden to overcome the presumption of abuse, but it can be done by proving special circumstances. You must prove to the bankruptcy court that although you income falls within the abuse range, your Chapter 7 case is still warranted. If the court agrees, your Chapter 7 case can proceed.

If you are considering filing for bankruptcy protection, call DeLadurantey Law Office, LLC, at (414) 377-0518. We believe that each client should receive the individual attention necessary to reach their financial goals. Recognizing the needs of working clients, we maintain a flexible schedule and offer evening appointments. Initial consultations are always free, and phones inquiries are always welcomed.

 

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