What is the Chapter 7 Means Test?

The Chapter 7 “means test” is the test that determines whether a debtor qualifies to file Chapter 7 bankruptcy, and Georgia uses its own standard numbers for the means test. Chapter 7 is the liquidation chapter of bankruptcy that discharges all of a debtor’s debts, subject to some exceptions, without the requirement to repay the debt. Thus, it is more difficult to file a Chapter 7. In order to discourage abusive bankruptcy filings, Congress enacted law that requires debtors to earn below a certain amount of income in order to qualify for Chapter 7. Debtors with higher incomes who cannot file Chapter 7 are required to file Chapter 13 and repay some of their debts.

The “means test calculator” is based on median income for your household size in the state in which you reside. In the Atlanta, Georgia area, median income for a household of one is approximately $40,546.00. Median income for a household of two is approximately $55,061.00. The first step to completing the means test is determining whether your average income for the last six months. If that income is less than the median income for your household size, then you pass without further inquiry and can file Chapter 7.

If your average income is above the median, you will need to deduct allowed expenses from your monthly income to determine the amount of your disposable income. The amount of the allowed expenses varies from state to state and are based on standard deductions provided by the Internal Revenue Service. The categories of deductible expenses generally include things like: housing, transportation, etc. If, after deducting the allowed expenses, your disposable income still more than the allowable amount, you will fail the means test and cannot file Chapter 7 bankruptcy. Debtors who cannot file Chapter 7 may still file Chapter 13, which is not necessarily any worse of a deal than a Chapter 7 filing. Chapter 13 provides debtors with many options that are unavailable under a Chapter 7, such as the ability to get rid of a second mortgage lien or reduce the interest rate on a vehicle loan.

The decision whether or not to file for bankruptcy and which type of bankruptcy to proceed with is a crucial one. Please seek the advice of a qualified attorney.

For a free consultation please contact the Law Offices of Charles Clapp at (404) 585-0040 or email info@lawcmc.com for more information.