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Chapter 7 Means Test

The Sweeney Law Firm, P.C. Jan. 30, 2023

If debt collectors are harassing you or threatening to garnish your wages or levy your bank account, the Memphis bankruptcy attorneys at The Sweeney Law Firm P.C. can help. You may have overwhelming debts, and unsure as to how you’re going to pay it all back. Chapter 7 bankruptcy is one option among many.

But in order to qualify for Chapter 7 bankruptcy, you must pass the Chapter 7 means test. The means test is meant to disqualify those who could otherwise repay their loans via a debt consolidator or by filing for Chapter 13 bankruptcy. Read more to learn about the means test requirements, and how an attorney can help you determine whether you qualify.

What Is the Chapter 7 Means Test?

Qualifying for Chapter 7 bankruptcy requires proving that your income is low enough. Since Chapter 7 discharges all of your debts without you having to pay any of them back, the barrier to entry is typically higher than other forms of bankruptcy.

Generally speaking, if you make less money than the median household income in your state, you automatically pass the means test. The median household income for Tennessee is currently $48,547. However, the household median may vary depending on the size of your household.

If you make less than that, then you can file Chapter 7 with no questions asked.

If you make more than that, you still may be able to qualify for Chapter 7. But now you have to pass the means test. The means test will take into consideration different factors, including your monthly expenses.

Understanding how The Means Test Works

The means test is the method by which the government weeds out applicants from using Chapter 7 bankruptcy to discharge their debts. In many cases, Chapter 7 is the preferred method of discharging debts. In other cases, Chapter 13 works better. But since it discharges your debts by liquidating the assets you can’t protect and then simply erasing them, the government has an incentive to limit access to Chapter 7.

How does the means test work? By considering your income against your expenses. The higher the amount of disposable income you have, the less likely it is you will qualify for Chapter 7 under the means test.

Your disposable income is then compared to the amount of debt you owe various creditors in unsecured loans. Remember, Chapter 7 cannot liquidate debt on loans backed by collateral. For instance, car loans and mortgages cannot be discharged in Chapter 7. Chapter 7 can only discharge credit card debt, other personal loans, and loans that are otherwise considered “unsecured” (not back by real property). If it is determined that you have enough disposable income left over to repay your debts, the court will force you to file Chapter 13.

Form 122 A-2: The Chapter 7 Means Test Form

If you’re forced to take the means test, either you or your authorized representative (typically a bankruptcy attorney) will fill out the 122A-2 Form. This is the form where you deduct allowable expenses to determine whether or not you will qualify for Chapter 7 bankruptcy. The court will look over the document and either approve or deny your petition. In recent years, the court has been more stringent about who they allow to file for Chapter 7 bankruptcy.

What if I Pass the Chapter 7 Means Test?

Even those who ostensibly seem to pass the Chapter 7 means test on paper may be denied. The court is not obliged to allow a Chapter 7 bankruptcy to proceed even if you pass the means test. The court will also require more information from you so it isn’t quite time to celebrate.

Some folks who do pass the Chapter 7 means test elect to file for Chapter 13. There are certain advantages of filing for Chapter 13 after having passed the means test. However, Chapter 13 also has its own restrictions including limits on the amount of debt you owe. There are some unlucky individuals who find themselves making too much money to qualify for Chapter 7 and owing too much money to qualify for Chapter 13. They are forced to file for Chapter 11 which is typically reserved for businesses. It is also among the most expensive forms of bankruptcy to file.

Talk to A Memphis Bankruptcy Attorney Today

At The Sweeney Law Firm P.C., we have helped a number of folks discharge their debts or organize repayment plans. We’ve helped folks get creditors off their backs and take control of their financial futures. We can help you too. Contact us to begin discussing your options today.