How Does the Means Test Work for Chapter 7 Bankruptcy?

How Does the Bankruptcy Court Determine Whether or Not You Qualify?

When you’re struggling to meet your financial obligations and have determined that a personal bankruptcy filing is your best chance for a fresh start, you may have a couple of options. If you qualify, you can permanently discharge certain debts in exchange for the relinquishment of unprotected property. This type of filing, known as a Chapter 7 petition, requires that you submit to a “means test,” demonstrating to the court that you lack the resources to pay your creditors off over a three-to-five-year period. How does the means test work? How can you determine whether you are eligible for permanent discharge of debt?

The Means Test—Potentially a Two-Step Process

When applying the means test, the court will first look at your average income for the past six months. If it is lower than the median income in your state for a family of your size, you will automatically qualify to permanently discharge debts under Chapter 7.

However, simply because your income exceeds the median income your state, that doesn’t mean you won’t be able to discharge debts through Chapter 7. If you have too much income, the court can still consider your expenses and determine that you are eligible. To do this, the court will identify all expenses that are for “necessaries,” i.e., the essentials of life, such as food, shelter, medical care and clothing. If the amount remain (your disposable income) is sufficiently low, the court may still allow you to file under Chapter 7.

Contact Attorney Howard N. Sobel

At the office of Howard N. Sobel, we provide personal bankruptcy counsel to men and women throughout the state of New Jersey. Contact our office online or call us at 856-424-6400 to set up a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.

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