Understanding the Chapter 7 means test

Understanding the Chapter 7 means test

| May 5, 2020 | Uncategorized |

A job loss, prolonged illness or other setback may send one’s fragile budget into a spiral. The thought of bankruptcy may be the most reasonable step to get out from under the burden of debt. For those in Michigan hoping to file for Chapter 7, which can result in the discharge of many debts, passing the means test is the first step.

The means test is a formula that sets the standard for who is eligible for Chapter 7 debt relief. The purpose of the means test is to determine whether one has sufficient assets to repay certain creditors, such as credit cards, medical debt and others. Since Chapter 7 may mean the liquidation of some assets to repay creditors, this form of bankruptcy may not be appropriate for those who have property they want to keep. Those who do not qualify for Chapter 7 may be eligible for Chapter 13 bankruptcy.

Someone who is preparing for the means test should gather documentation about his or her income for the most recent six months. Then the filer will collect information about recent expenses. Some expenses, such as food, clothing, rent and other bills will be subtracted from the total income, and what is left is called “disposable income.” To pass the means test, one’s disposable income must fall below the median income for others in the United States in similar circumstances.

Of course, the process is more complex than this, and it is important that one is thorough and accurate. Nevertheless, about 82% of those who take the means test qualify for Chapter 7. With the assistance of a compassionate attorney, Michigan residents who are struggling with debt can learn about the most appropriate options for their situations.