Seeking personal bankruptcy protection is never an easy decision, but once committed to it, your first decision should be to determine which chapter you want to file under. Most people tend to file under Chapter 7, yet as many of our past clients here at William, H, Lively, Jr., PLLC can attest to, you first must qualify.
There is a reason why Chapter 7 is so popular; it offers the benefit of having certain debts discharged. Yet federal bankruptcy authorities do not want anyone attempting to take advantage of the benefits that a Chapter 7 bankruptcy offers. Thus, a means test exists to determine whether you can file under this chapter.
Comparing you to your demographic cohort
According to the website for the Federal Judiciary, the first step in the Chapter 7 means test is to compare your current monthly income to that of your demographic cohort for your particular state. If your income falls below the average for your demographic, then you automatically qualify to file under Chapter 7. If it is not, then the next phase of the means test begins.
This phase involves the court projecting your aggregate monthly income (minus certain allowable expenses) for a period of five years. If that projected amount is either less than 25% of your total nonpriority unsecured debt (provided that amount exceeds $7,700) or $12,850, then you pass the means test. The court will process your Chapter 7 bankruptcy petition.
Failing to pass the means test
What if you happen to fail the means test. Is bankruptcy no longer an option for you? That is not the case. Rather, the court typically then simply converts your petition over to a Chapter 13 case.
You can learn more about the basics of a Chapter 7 bankruptcy throughout our site.