Taking the bankruptcy means test to assess Chapter 7 eligibility

On Behalf of | Dec 22, 2023 | Chapter 7 Bankruptcy |

Navigating financial difficulties can be overwhelming. For some, filing for Chapter 7 bankruptcy becomes a viable option. However, before embarking on this path, individuals must undergo an evaluation known as the bankruptcy means test. This assessment determines eligibility for Chapter 7 bankruptcy.

The means test involves a thorough analysis of an individual’s income and expenses. The idea is to assess his or her ability to repay debts. The test considers monthly income, household size and specific allowable expenses to arrive at a disposable income figure. This disposable income is a key factor in establishing eligibility for Chapter 7 relief.

Monthly income

To start the means test, individuals must calculate their average monthly income over the six months preceding the bankruptcy filing. This includes all sources of income, such as wages, rental income or contributions from others. If the calculated income falls below the median for a household of the same size in Tennessee, the individual qualifies for Chapter 7. If it exceeds the median, further examination of allowable expenses becomes necessary.

Allowable expenses and deductions

After calculating monthly income, subtracting allowable expenses determines how much “disposable income” exists. Allowable expenses include housing, utilities, transportation and other necessities. If the resulting disposable income is below a specified threshold, Chapter 7 becomes possible. If the disposable income surpasses the threshold, alternative debt relief options may need exploration.

Per the U.S. Courts, the majority, or about 64%, of people who file for bankruptcy wind up doing so through a Chapter 7 format. By comprehending the calculation methods, allowable expenses and the purpose of the means test, individuals can make informed decisions about financial recovery.


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