Chapter 7 bankruptcy is designed to give someone a fresh start by eliminating their unsecured debts. Unsecured debts include credit card bills, medical bills, amounts due on vehicles that were surrendered or repossessed, rent from a prior residence, and personal loans. (Debts that generally cannot be eliminated under Chapter 7 include child support, alimony, student loans, and certain tax debt). A Chapter 7 will stop the garnishments of someone’s wages or bank accounts and will prevent creditors from taking actions such as evictions, foreclosures, repossessions, or civil litigation. If you are current on your rent, car, or mortgage payments when you file, you should be able to keep your property and remain in your residence as long as you continue to make the payments. Since this form of bankruptcy does not propose to pay any past due amounts, the person filing for Chapter 7 should be prepared to bring the payments current or surrender that property shortly after filing. A person interested in Chapter 7 must also pass the Means Test.
How to Pass the Means Test for Chapter 7 Bankruptcy – What is the Means Test?
The Means Test looks at a person’s average monthly household income for the past six months. It takes into account income, expenses, family size, and any allowable IRS deductions. If the means test indicates a person has little or no disposable income at the end of the month, they may qualify for Chapter 7 bankruptcy. To determine eligibility, the person interested in Chapter 7 must complete two separate forms.
How to Pass the Means Test for Chapter 7 Bankruptcy – Statement of Current Monthly Income
To determine whether someone passes the Means Test and qualifies for Chapter 7 bankruptcy, they must first complete form 122A-1, or the Chapter 7 Statement of Your Current Monthly Income. This form checks whether the household income is below the state’s median income for a given household size.
An individual must fill out their case information, marital status, and six months’ worth of income information. If an individual is married and not separated, income for both spouses must be reported on the means test, regardless of whether both spouses are filing or only one spouse is filing. Then, they calculate their total annual income, based on the average income for the past six months. If the person’s income is less than or equal to Georgia’s income median for their household size, then they can file for Chapter 7 bankruptcy.
How to Pass the Means Test for Chapter 7 Bankruptcy – Means Test Calculation
If the person’s income is greater than Georgia’s income median for their household size, they must complete the second form, 122A-2, which is the Chapter 7 Means Test Calculation. This form focuses on a person’s disposable income and their expenses.
An individual must fill in their case information, total current monthly income from Form 122A-1, and any allowable deductions (debts and expenses). They must determine if there is a “presumption of abuse,” which means that they have too much income to qualify for Chapter 7 bankruptcy. Under limited circumstances, such as a recent reduction in income, the presumption of abuse can be overcome.
To determine whether there is a presumption of abuse, an individual should multipy their monthly disposable income according to the means test calculation by 60. If a person’s:
- Total disposable income is less than $8,175 = there is no presumption of abuse and you can file a Chapter 7 case
- Total disposable income is between $8,175 and $13,650 = you may qualify for Chapter 7, but further calculations are necessary to determine if there is a presumption of abuse
- Total disposable income is more than $13,650 = there is a presumption of abuse and you will likely not qualify for Chapter 7 (there are some special exceptions allowed)
If the person passes the Means Test based on forms 122A-1 or 122A-2, they should also be prepared to complete bankruptcy counseling before filing and attend a creditor meeting approximately 30 days after the case is filed. They will have to answer questions under oath about their financial situation. If an individual did not pass the Means Test, they might want to re-take the test after six months or consider filing Chapter 13 bankruptcy.
Have Additional Questions? Contact Our Bankruptcy Team
The Chapter 7 Bankruptcy Means Test can seem confusing at first, but basically, it involves filling out two sets of forms and comparing your annual income to state-based income brackets. If you need help in the bankruptcy process, please contact Burrow & Associates at (678) 323-2394 or our online contact page. We’re currently running a promotion and will file your bankruptcy case for no money down.