Am I eligible for Chapter 7 bankruptcy?

A Chapter 7 bankruptcy filing is a fairly straightforward process. It typically takes about 100 days from start to finish and can be a great option if your goal is to eliminate credit card debt. However, you must qualify for a Chapter 7 based on your income and household size. The form you will need to complete for this is referred to as the “means test.”

There are two parts of the means test. First, you must compare your household income with the median income for your household size. As of May 1, 2016, the applicable median incomes in Massachusetts are as follows:

  • Household of one: $57,594
  • Household of two: $72,346
  • Household of three: $90,506
  • Household of four: $111,595

The calculation of your income is based on the last six months, although expected changes may be factored in. Also, these numbers are based on gross income received before any taxes or payroll deductions are counted.

If your income is less than the median amount, then you automatically qualify for a Chapter 7 and the rest of the means test form can be disregarded. If your income is above the median amount, then the second portion of the means test must be completed in order to determine whether you are eligible.

The Second Part of the Test: Income and Expenses

The second portion of the means test is a comparison of monthly income and expenses. The idea is to determine whether you have sufficient disposable income each month, such that your case should be a payment plan under a Chapter 13. However, the form only allows you to deduct certain expenses.

Also, while you can deduct the true cost of your expenses for many items, that is not the case for everything. For example, expenses for food, clothing, and transportation costs can only be deducted in presumed amounts based on your household size—regardless of what your true cost for these items are. Because of this, the means test can sometimes lead to frustrating results. It is therefore important to speak with an experienced bankruptcy attorney about your case.

Attorney Brine has significant experience in all aspects of consumer Chapter 7 cases, including means test issues. Phone consultations are free, so contact Brine Consumer Law today to discuss your options.