If you’re considering filing for Chapter 7 bankruptcy, one of the earliest and most important steps in the process is the means test. This test determines whether you’re eligible to file for Chapter 7 or whether Chapter 13 bankruptcy might be a better option.
Below, Ron Lundquist, Attorney at Law, explains what you need to know about the Chapter 7 means test and how it works.
How Does the Chapter 7 Bankruptcy Means Test Work?
Chapter 7 bankruptcy is designed for individuals who do not have adequate income to pay off their existing debts. The means test is designed to limit the use of Chapter 7 to those individuals only.
How does it accomplish that? The test works by first determining your total monthly income. It then deducts specific monthly expenses you may have, as well as national and local standards for specific living expenses, from the total. Then, it compares the median income in your state to your average monthly income over the six-month period prior to your bankruptcy filing.
Essentially, the test is designed to define how much disposable income you have and whether it’s enough to repay your outstanding debts. It also functions to compare your average monthly income to your state’s median. If your income is below the median, you’ll pass the test and qualify to file for Chapter 7 bankruptcy.
It’s important to note that you can still pass the means test even if your average income is greater than the state median. You’ll need to fill out the test form in its entirety to determine your eligibility.
What You Need to Pass the Chapter 7 Means Test
Since the means test takes into account your monthly expenses, you’ll need verifiable documentation of what they are. Before you fill out the test paperwork with your bankruptcy attorney, gather all of the supporting documentation you’ll need to prove that your disposable income is insufficient to repay your debts. This includes documentation for:
● Rent or mortgage payments
● Medical bills
● Utility bills
● Car payments and other secured debt payments
● Childcare expenses
● Court-ordered payments
● Heath, life, or disability insurance
● Involuntary deductions and taxes
Common Means Test Mistakes to Avoid
When you want to file for Chapter 7 bankruptcy because you know you don’t have the income to repay your debts, you can’t afford to make mistakes. If you mess up, you may not pass the test, which will bar you from filing for Chapter 7. Some of the most common means test mistakes you’ll want to avoid include:
● Using the wrong household size
● Listing child support you don’t actually receive
● Listing an income that doesn’t match your documentation
● Taking non-allowable deductions
● Missing out on allowable deductions
● Deducting actual mortgage payments instead of the standard housing deduction
How can you successfully avoid making these common errors? Work with an experienced bankruptcy attorney. You can certainly try to file on your own, but with an attorney, the average success rate for Chapter 7 cases is 95%. Approximately 40% of pro se cases (the legal term for filing on your own) are dismissed every year.
Need a Bankruptcy Attorney? Contact Ron Lundquist, Attorney at Law
If you’re considering filing Chapter 7 bankruptcy, you need an attorney that deeply understands the ins and outs of the process. Get in touch with my office today to discuss your situation, and I’ll help you determine which filing option is right for your needs and circumstances. For over 20 years, I’ve proudly served residents throughout the Minneapolis metro, and when you need bankruptcy help, I’m here for you too.
To learn more or schedule a free consultation, call me at 651-454-0007 or contact my office online.