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Understanding the Chapter 7 means test

A common myth that many in Hackettstown may subscribe to is that bankruptcy laws are easy to exploit. They may hear stories about people accumulating significant assets and then simply filing for bankruptcy to get out of having to pay for them. In reality, the guidelines governing bankruptcy are much more strict than many know. Having any of one's assets and liabilities dismissed is a privilege not everyone qualifies for. While a Chapter 7 bankruptcy may be among the most common forms of personal bankruptcy (indeed, information shared by the American Bankruptcy Institute shows that of all non-business filings in 2017, over 61 percent were Chapter 7), those hoping to file for it must first pass the Chapter 7 means test. 

The means test was designed to keep consumers from abusing personal bankruptcy laws. It essentially identifies if one does not have enough income coming in to settle his or her debts. The means test looks at one's current monthly income for the six months prior to him or her filing for bankruptcy. If his or her income is above the state median for his or her demographic, then it must be determined whether his or her disposable income might be enough to pay his or her debts. 

Per the Chapter 7 Means Test Calculator (supplied by the website for the United States Courts), one must subtract certain allowed expenses from his or her monthly income to determine his or her disposable income. That number is then multiplied out over 60 months. If that amount is less than $7,700, one qualifies to file under Chapter 7. If that amount is between $7,700 and $12,850, one can only qualify for Chapter 7 if 25 percent of his or her total nonpriority unsecured debt is more than it. If one fails the means test, he or she may then need to consider a Chapter 13 bankruptcy. 

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