If you know that chapter 7 bankruptcy is the right choice for you, or you have been told that chapter 7 bankruptcy is the best type of bankruptcy to file, you will first need to make sure by passing the means test.
What is the Means Test in Bankruptcy?
The means test is spelled out in 11 U.S.C. § 707. If you read the language in this section of the bankruptcy code it quickly becomes a bit confusing. Essentially, the means test boils down to a formula which considers your household income minus allowable expenses. The result of this calculation is your expendable income. If you’re expendable income is too high then you do not qualify for the means test. Generally speaking, if you’re expendable income is under or at the allowable amount, you’re able to file chapter 7 and have your unsecured debts liquidated. There’s a third option that might allow someone to file under chapter 7 even if they fail the means test, which although possible be undertaken very carefully. This third option arises for certain individuals with veteran status, or who may have incurred expenses due to a serious illness. For would be chapter 7 bankruptcy filers in this position it is possible that you might be able to file for chapter 7 even though your expendable income is over the allowable dollar amount.
More About Your Household Income
Also keep in mind that when we talk about household income, the bankruptcy court is referring to all income. Precisely what factors must be considered when examining what is a household can be further defined by looking at bankruptcy case law as well as the bankruptcy code. Please consult your attorney to get more information as to what income from members of your household must be included when considering filing for bankruptcy.
Presumption of Abuse and Case Dismissal
If your income after allowable expenses exceeds the amount of allowed extra income your case may be dismissed by the bankruptcy court because there is a presumption of abuse in this chapter of the bankruptcy code where extra income exceeds the maximum allowed amount. However, it is possible that your attorney may be able to argue on your behalf that this presumption of abuse is incorrect because of a medical concern or your military service. Here, by instituting the presumption of abuse, the court is trying to prevent people from taking advantage of chapter 7 to escape debt. One way to accomplish some control is for the court to hold the attorney liable for presenting the court with a chapter 7 petition without adequately buffering the petition with adequate reasons as to why the filer can use chapter 7 even though expendable income exceeds acceptable limits.
Final Thoughts
The bankruptcy system in the United States prove can be tricky to navigate. While the means test acts as a screen which attempts to keep people from filing chapter 7 who do not on the face of the test qualify, there are still other options for potential bankruptcy filers under chapter 7 to bypass the means given their special circumstances. Consult an attorney who is familiar with bankruptcy to help guide you through this system.
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