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Bankruptcy Help For Everyday People

The means test and how it helps you qualify for Chapter 7 bankruptcy

| Apr 19, 2021 | Chapter 7 |

For individuals, the most commonly used kind of bankruptcy is Chapter 7 bankruptcy. If you’re interested in filing for bankruptcy, you may be wondering if you can qualify. Perhaps you’re just out of college, or maybe you are about to go into retirement. Regardless of your situation, you may qualify for bankruptcy and relief from your debts.

To become eligible for Chapter 7 bankruptcy, you need to pass a means test. This test looks at your finances to determine if your monthly income is low enough for Chapter 7 bankruptcy. Usually, you need to have an income that is less than or equal to your state’s median income. If your income is above that level, then you will need to fill out additional information to see if you qualify.

Be prepared for the means test

The first thing you should do is take steps to qualify for bankruptcy through the means test. Collect proof of your income, if you have an income. Then, see if it meets or falls below your state’s median income. You’ll need to fill out form 122A-1, which is a statement of your current monthly income. You’ll also want to fill out the form called 122A-2, which is the means test calculation.

What do you do if your income is too high to apply for Chapter 7?

If your income is too high, you’ll need to show that you have special circumstances that either increase your expenses or reduce your income. For example, you may want to include documentation of healthcare expenses that are in excess of the IRS National Standard allowances, expenses related to the Family Violence Prevention and Services Act or home energy costs that are above the IRS Local Standards.

On form 122A-2, you’ll also need to calculate your disposable income. Once you know the total amount of disposable income, you’ll be able to tell if you meet the requirements for Chapter 7 without a presumption of abuse. If not, then you may need to seek out relief through Chapter 13 bankruptcy, which does not have low income limits in the same way as Chapter 7.

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