Chapter 7 bankruptcy allows you to discharge certain unsecured debts, such as credit card debt and medical bills. When you file for Chapter 7, you are basically saying that you don’t have enough income to pay off your debts. Known as liquidation bankruptcy, Chapter 7 will allow you to liquidate certain assets to pay off some debts, and many other debts will be discharged. Because this could easily be taken advantage of by those simply wanting their debts to go away, a means test has been established to determine eligibility.
How Does the Means Test Work?
The means test is a calculation to determine if you have disposable income at the end of each month. If you do have disposable income, you may need to file a Chapter 13 bankruptcy and create a repayment plan. However, if you don’t have enough income on a monthly basis, you will be eligible to file for Chapter 7.
The U.S. Census Bureau and Internal Revenue Service puts forth a median household income standard, which will be compared with your aggregate monthly income for the past 5 years (minus certain expenses). Your family’s household size will also be accounted for in this equation. Once your aggregate household monthly income has been calculated, it will be compared with the median standard to determine your eligibility for filing Chapter 7.
The means test takes several sources of income into consideration, including:
- Business income
- Retirement plans
- Interest and dividends
- Rental income
- Unemployment income
If your income is below the median level, you will be able to file a Chapter 7 bankruptcy. However, if it is above the median level, you will need to file a Chapter 13 bankruptcy. The calculations of the means test can be complicated, and one mistake in your paperwork could prohibit you from filing for Chapter 7. That is why it is important to have the assistance of an experience Chapter 7 bankruptcy attorney to guide you through the process.
Call Our Detroit Chapter 7 Bankruptcy Lawyer Today at (888) 822-6730
At the Law Offices of Marshall D. Schultz, we offer knowledgeable legal assistance to clients facing bankruptcy. We know this is a stressful time for you and your family. That is why our attorney will answer your questions, analyze your situation, and discuss your options for seeking a fresh start in life.
Contact us today to receive an immediate, free consultation.