A Chapter 7 bankruptcy is one of the most common forms of bankruptcy filed today. It involves liquidating the majority of your non-exempt assets (excluding things you need for daily living, like your home and car) and using those funds to pay your debts. Anything left over that is an unsecured debt is typically discharged, meaning you don’t have to pay it. Chapter 7 is a great option for many people, but not everyone is eligible. First, you have to pass a test.
The Means Test
In order to file a Chapter 7 bankruptcy, you must pass the means test. This test, simply put, is designed to ensure that you do not have enough money or assets to pay your debts in a reasonable time frame like you would with a Chapter 13 bankruptcy. The test is one that prevents people with high incomes — except those who have a high debt to income ratio — from having much of their debt discharged.
Passing the Means Test
The first portion of the means test is quite straightforward: if your family makes less than the median income of a family of your size in your area, you automatically pass.
If you don’t qualify using the above criteria, you may still be able to pass the test. The court will examine your disposable income to determine if you would be able to pay at least some of your debts. Mortgage or rent, utilities, and other necessary expenses are deducted from your total income and what is left over is considered “disposable.” If your disposable income is too high, you will not pass the means test. However, if it is under a certain amount, you pass and will be eligible to file a Chapter 7.
I Didn’t Pass — Can I Still File?
In some instances, families with a very high debt to income ratio will be able to file for a Chapter 7 without passing the means test. If you didn’t pass the means test and don’t have a high debt to income ratio, bankruptcy may still be an option for you in the form of a Chapter 13 or in some rare cases, a Chapter 11 bankruptcy.
Contact the Law Firm of D.C. Higginbotham Today
If you’re struggling with debts that you don’t have the money to pay, don’t hesitate to contact an experienced bankruptcy lawyer. Whether you’re eligible for Chapter 7 bankruptcy or another form of debt relief, we can help. Call now for a consultation at (904) 354-6604.