The Means Test (Qualifying for Chapter 7)

THE MEANS TEST: (Qualifying for Chapter 7):

To qualify for Chapter 7 relief under the U.S. bankruptcy code you must pass what is known as the “Means Test.”  This test determines whether or not you or your family has sufficient disposable income to repay your creditors.  If it is determined that you do, you cannot file Chapter 7 and must consider a repayment plan under Chapter 13.

The Means Test first determines whether or not your income is greater than the medium income for a family of your size in the state in which you live.  The medium incomes for Florida as of April 1, 2013 are $41,915.00 for a single earner, $51,760 for two people, $54,934 for three people and $65,260 for a family of four.  If your income is less than the medium incomes noted above you are eligible for Chapter 7 relief.  If not, you must move to the second phase of the Means Test.

If your income is greater than the medium income of your state for a family of your size and you want to file for Chapter 7 bankruptcy relief, the second part of the Means Test must be performed.  In this part your allowable expenses (as defined by the IRS) are subtracted from your total income to determine your “disposable income.”  If your disposable income over the next 5 years will be less than $6,000 (or $100/month), you “pass” the means test and can file Chapter 7.  If your disposable income over the next 5 years is more than $10,000 (or $166/month) you will “fail” the means test and must demonstrate a special need to file for Chapter 7 relief.  Having disposable income between $6,000 and $10,000 over the next 5 years puts you in a grey area requiring one more calculation.

Having disposable income between $100 and $166 per month requires you to compare your disposable income over the next 5 years to the amount of your unsecured and non-priority debts.  If your disposable income is greater than 25% of your unsecured debts you will fail the means test and must demonstrate special circumstances to file for Chapter 7 relief.  If your disposable income is less than 25% of your unsecured debts you “pass” and can file Chapter 7. Please remember that failing the means test does not mean you are unable to avail yourself of certain bankruptcy protections.  If you fail the means test, you will still likely qualify for Chapter 13 bankruptcy protections.

Let Matthew Bothwell, P.A. help you through the bankruptcy process.  Contact us today at (904) 351-6640 or [email protected].