Means Test for Chapter 7

If you’ve researched bankruptcy information, and the types of bankruptcies, you may have read that Chapter 7 bankruptcy is a faster, cheaper option to discharge debt.  It’s not always better. But not everyone qualifies for this option. Congress created a Means Test for Chapter 7 to help determine Chapter 7 eligibility.

What is the Bankruptcy Means Test

The bankruptcy means test is a long form that asks how much money someone has earned recently. It’s trying to figure out what your “current monthly income” is. If someone makes below the magic number, they pass the means test for Chapter 7.  Consequently, they can file bankruptcy that way.

So What is the Income Limit for Chapter 7

bankruptcy means test for chapter 7
A bankruptcy attorney can skillfully complete the bankruptcy means test for chapter 7.

The short answer is, the income limit for Chapter 7 is the median income for your state based on your household size. This is a number that changes from time to time, based on the overall economy.  For cases filed after April 1, 2018, the annual median income numbers are in a spreadsheet compiled by the Department of Justice Means Testing.  In California, the annual one-person household median income is just shy of $55,000, while a four-person household has a median income level is just over $91,000.

Do I Qualify for Chapter 7

It’s common to wonder “Do I qualify for Chapter 7” since not everyone does. It’s really a two-step process. Firstly, do you earn under the median income limit for your state and household size. Secondly, if you don’t, is there enough to pull you back under. And thirdly, can you actually afford to repay some of your debt. This may all sound simple, but as you’ll see, there’s a lot of gray to consider. Just like it’s not really a two-step process.

Does means test income count just me, or my spouse also?

It’s true that your spouse doesn’t have to file bankruptcy with you. But even if they aren’t, California is a community property state.  In a community property state, the presumption is that all income during the marriage is considered community property income. So the chances are that your spouse’s income will count also.

Will I qualify for Chapter 7 if I earn more than the median?

It’s common to wonder “Do I qualify for Chapter 7” even if you earn more than the median. Don’t panic, even if you earn more than the median income for your state and household size. It’s possible that you may still qualify for Chapter 7. The rest of the bankruptcy Means Test massive form requires a series of numbers filled in for expenses. In some cases, these monthly expense are what you truly spend. In others, it requires some standard expense number put out by the Internal Revenue Service. If you spend more than the IRS allowance, that doesn’t count.  However, if done properly by a skilled bankruptcy attorney, it can still be possible to be eligible for Chapter 7 even if you make more than the median income.

Try our brand new and probably inaccurate means test calculator.

Allowable expenses in the means test

It can be disappointing to learn that some real-life expenses don’t count in the bankruptcy means test. For example, there’s no box in which to put your fantasy football pool, or your season tickets to the Lakers (or opera). More realistically, we have no box for that money you send to your ex but it’s not court-ordered support.

There is a box for food and clothes, but you get what the government averages give you, and that’s all. If you spend more than that, you’ve got an uphill battle ahead to prove why that should be allowable.  An experienced bankruptcy lawyer will get to know you and your situation, and maybe think of a box that is a good fit for an expense that you may not have considered.

Learn about Chapter 13 bankruptcy.

I Don’t Pass the Means Test for Chapter 7 Right Now

Maybe after we plug in all the numbers, you don’t qualify for Chapter 7. No matter how skillfully done, it just might be the truth that you don’t meet the eligibility for the bankruptcy means test for Chapter 7 right now.

Timing is everything.

The good news is that someone who isn’t eligible for Chapter 7 now might qualify in the future. There is a strategy in timing, and one element we control is when we choose to file bankruptcy.

How does “When” Factor into the Bankruptcy Means Test?

One element of the Chapter 7 means test is which pay stubs to use for proof of income. The Bankruptcy Code defines “Current monthly income” in section 101(10A)(A) as all the income received in the six months before filing. If we wait to file your case now and file it later, that will be a different six months of income, and some of today’s “old” income will no longer count.

There’s a downside if you choose to wait. You’re not protected from your creditors until you file. That means they can continue to harass you, give you a lawsuit, and make your life miserable while we wait for the ideal time to strike.

What’s the worst that can happen if I file Chapter 7 anyway

If you don’t qualify and file Chapter 7 bankruptcy anyway, the Department of Justice will send you a very official letter. It’ll state that in your case the presumption of abuse arises. Bankruptcy abuse is bad. It will then likely file a motion to dismiss the case, and you lose all that time and money and still need a bankruptcy.

I’m not eligible for Chapter 7, Can I Still File Bankruptcy

Not everyone is eligible for Chapter 7. However, even if you don’t pass the means test for Chapter 7, you still deserve debt relief. Consequently, there’s an option for you. You can file bankruptcy under Chapter 13. You make some payments on your debt, freeze interest so you’re not paying minimums forever, and are protected from lawsuits. You’ll probably want an experienced bankruptcy lawyer.

If you want, we can complete the means test for Chapter 7 without committing to a full bankruptcy, and see if you qualify. If you continue with us, we’ll subtract the means test fee from the bankruptcy cost. Call or email and let’s set it up.

Contact us now.