Congress changed the bankruptcy laws in 2005, making it a bit harder to qualify to file chapter 7 bankruptcy.
(Remember in Chapter 7 bankruptcy debts are “discharged” and in Chapter 13 Bankruptcy debts are repaid.)
Under the old laws the bankruptcy judge decided if you qualified to file Chapter 7 Bankruptcy – or if you had to file Chapter 13. Under the new bankruptcy rules, there are specific pre-set criteria for determining if the debtor can file Chapter 7 or if they must file Chapter 13.
In other words, the bankruptcy court wants people to repay their debts (rather than discharge them) if the truly have the income or the “means” to do so.
So, the new bankruptcy rules use something called the “means test” to determine whether your income is low enough for you to file Chapter 7 bankruptcy. The rules will compare your income to the median income of families of the same size in your state.
- If your income is below the median income, you are presumed to qualify to file Chapter 7 bankruptcy. (The judge can still require filing Chapter 13 if you have enough, though.)
- If your income is higher than the median income, the rules then look at your expenses and debt payments, to see if you have enough income for a Chapter 13 repayment plan.
The higher your disposable income, the more likely you will not be allowed to use Chapter 7 bankruptcy.
However, you can still have a relatively high monthly income and possibly qualify for Chapter 7 bankruptcy, if you also have a lot of expenses – for example, a high mortgage payment, and/or a large car note and/or high taxes, and/or child support and/or other expenses.
How Does the Chapter 7 “Means Test” Work?
Taking the “means test”, requires you to first determine whether your income is more or less than the median income in your state. If your current monthly income is less than the median income for a household of your size (in Michigan – or your state), you pass the means test and can file Chapter 7 bankruptcy.
If you call our experienced, affordable bankruptcy lawyers we can tell you if you “pass” the means test.
However, if you do earn more than the “median income”, next you must figure out if you would have enough left over (after allowable expenses) to repay some of your debt.
This second part of the means test is significantly more complex.
Remember, “median income levels” are different in each state, and are calculated by household size. Plus each county (including Wayne County) and each metro region (including Detroit) has allowed amounts for expenses that are different in each category – making it more complicated.
For example: your “allowance” for housing in Wayne County may be lower than it is in Oakland County – because houses (and rent) are typically higher in Oakland County than in Wayne County.
WE understand that this and othe rBankruptcy laws can be confusing. If you call our experienced, affordable bankruptcy lawyers we can help you determine if you “pass” this part of the means test.
If You Pass the Chapter 7 Test You Still Need a Bankruptcy Lawyer
Even if you qualify under the means test – filing for Chapter 7 bankruptcy might not be the best solution for your unique situation. So discussing your financial situation and debt relief needs with an affordable bankruptcy lawyer can help you determine IF you qualify for Chapter 7 and if Chapter 7 is best for you.
Because our attorneys are genuinely here to help you, we also offer a variety of payment methods and affordable payment plans to help you get started right away.
Best Southfield Bankruptcy Lawyers
The sooner you file bankruptcy, the sooner you stop garnishments, stop foreclosure actions, stop repossessions and start getting your life back on track. We never want you to delay filing bankruptcy and risk getting further in debt and/or losing your home or car. So we will custom tailor a payment plan that works for you – so you can get started right away.