Chapter 7 Means Test

Cerritos Bankruptcy Lawyer Helps You Assess Your Debt Ratio

The means test, which was added to the Bankruptcy Code in 2005, objectively determines whether individuals qualify for Chapter 7 bankruptcy protection. It does not apply to businesses or individuals whose debt is primarily business debt. In order to determine your qualifications and eligibility, it is important that you work with a Cerritos bankruptcy lawyer from the Law Office of Raymond J. Seo right away.

Who is eligible for Chapter 7?

A person can be determined eligible by calculating their average monthly gross income for six months prior to filing for bankruptcy. The income is then compared with the median family annual income for households of the same size in the debtor's state of residence. If the debtor's income is not more than the applicable state median income, the debtor "passes" the means test and may file under Chapter 7.

If the debtor's annual income exceeds the state median income, a further analysis is performed, looking at the debtor's calculated ability to repay all or a portion of his debts over 60 months under a hypothetical Chapter 13 repayment plan.

Calculating Disposable Income

The debtor's disposable income is calculated by subtracting a mix of actual and standardized expenses from his average income. "Disposable income" is the amount left over after subtracting all allowable actual and standardized expenses. If the debtor can pay $6,575 in 5 years or as little as $110 monthly to creditors, a presumption arises that a Chapter 7 filing is "abusive."

Calculating Median Income

To calculate median income based on family size, the debtor should include himself or herself, his or her spouse (unless separated), children, and any relatives for whom he or she provides at least one-half support, whether or not they reside together. If the debtor has a fiancé/fiancée with whom he or she has resided as a family unit for a long period of time, then that person, and any children they support, can be included in determining family size.

Work with our firm's attorney as soon as possible!

While there are many different means tests available online, it is important that you contact the Cerritos bankruptcy lawyer from our firm as soon as possible. Each person's case is different, and each individual deserves personalized representation. When you work with our firm, we will review your financial situation and help determine the best course of legal action for your particular case.