Whether a Tennessee debtor is trying to file for Chapter 7 or Chapter 13 bankruptcy, it is important to be cognizant of the means test and how it can impact a case. Financial challenges can happen to anyone and the individual circumstances such as the person’s employment situation, what assets they have and their income will be considered when determining if it is possible to file and what chapter would be most effective. The means test is a critical part of any case.
First, it is important to know that disabled veterans do not need to meet the requirements of the means test provided they have a 30 percent disability rating and more than 50 percent of the debt was accumulated while they were on active duty. People whose debt came predominately from business operations can file under Chapter 7 without the means test. With the means test, the debtor’s average income for the prior six months will be compared to the median family income in the state. If it is less, there is no obstacle to filing under Chapter 7. However, the trustee can later decide that the debtor’s income warrants a Chapter 13. This is something to consider as court agreement will lead to the filing being converted from Chapter 7 to Chapter 13.
Income will be calculated based on wages, business income, unemployment compensation, income from rental property, workers’ compensation, pensions, retirement income and more. Social Security retirement, disability insurance, Supplemental Security Income and Temporary Assistance for Needy Families will be excluded. If the debtor earns more than the median income in the state, it will be a Chapter 13 filing unless the debtor meets the requirements under the second step of the means test in which expenses are deducted and the debtor’s disposable income is calculated. If there is sufficient disposable income, the filing must be Chapter 13.
Those who do not meet the means test requirements can file for Chapter 7, but it is likely that the case will either be dismissed or there will be a motion to convert it to Chapter 13. However, if there are special circumstances like losing one’s job or having a severe medical issue, it is possible that there can be a Chapter 7 filing. The means test is a fundamental aspect of a bankruptcy filing. Although it might appear clear-cut as to who qualifies, there is nuance that an experienced legal professional can explain. When thinking about bankruptcy, it might be beneficial to consult with an attorney first to understand all the options from the start.