The bankruptcy means test is a crucial component of the bankruptcy process introduced as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). It is designed to prevent higher-income individuals from filing for Chapter 7 bankruptcy.
Understanding how the Chapter 7 means test works is essential if you are considering bankruptcy to get out of a financially difficult situation. Remember, you will not be eligible for bankruptcy if you fail the means test. In such a case, you may have to resort to other options, such as Chapter 13 bankruptcy or debt consolidation.
What’s your average monthly income?
The means test begins by comparing your average monthly income over the six months preceding your bankruptcy filing date against the median income for a household of your size in Tennessee. If your income is below the median, you generally qualify for Chapter 7 bankruptcy without further means testing.
Should your income exceed the median, you must proceed with a more detailed means test. This involves deducting certain allowable expenses, such as housing, utilities, transportation and other necessary living expenses, from your monthly income. These expenses are typically determined using standardized IRS and state guidelines.
After deducting allowable expenses, the remaining income is considered your ‘disposable income.’ You may still qualify for Chapter 7 bankruptcy if it is below a certain threshold. However, if your disposable income exceeds that threshold, you might be required to file for Chapter 13 bankruptcy instead.
Are you considering bankruptcy?
It’s important to note that the means test is just one aspect of determining your eligibility for bankruptcy. Other factors, such as the nature of your debts, also play a role. Additionally, certain exemptions and deductions are available in the means test to help individuals qualify for Chapter 7 bankruptcy, even if their income initially appears too high.
Navigating the means test and understanding its implications can be complex, so it’s advisable to seek qualified assistance to assess your financial situation and make informed decisions.