Before receiving Chapter 7 bankruptcy relief, you must prove you're eligible by taking and passing the Chapter 7 means test. If you pass, you'll receive a debt "discharge" wiping out qualifying bills after satisfying other Chapter 7 requirements.
The means test looks at your income and expenses to determine if you can repay a portion of your debts to your creditors. If you can, you won't qualify for Chapter 7 bankruptcy. Here are some things to consider if you want to file for bankruptcy but can't pass the Chapter 7 means test:
Learn more about qualifying for the Chapter 7 bankruptcy means test.
Making Chapter 7 means test mistakes is commonplace because the means test is one of the most complicated forms debtors must complete.
If it doesn't appear you qualify, check your entries before giving up. Here are some common errors that if fixed, might correct the problem:
Income errors. You'll include income earned during the entire six months before filing. So a December 15 filing would include earnings from June through November but not May or December. Also, don't include a spouse's income used to pay debts you aren't obligated to pay, such as child support payments. You'll also exclude a support obligation owed to you unless you receive the money.
Missing deductions. Did you include income tax paid each month and mandatory union dues? Did you deduct costs related to your spouse's separate household? Make sure you understand what you can deduct.
Exempt filers. If you can classify more than half of your debts as business debts, you don't need to take the means test. Certain military personnel are also exempt. You'll find the criteria on the form included at the end of the article.
If you're still not passing after recalculating your entries, consider consulting with a local bankruptcy attorney. In some cases, an experienced attorney can point out legal ways of increasing expenses or decreasing income so you can pass.
Learn whether you can file for bankruptcy while living with your parents.
When determining whether you qualify for Chapter 7 bankruptcy, the means test looks at your income for the six months preceding your filing date. However, it might not be the most accurate reflection of your current circumstances.
If you recently received a pay cut or experienced a decrease in income, simply waiting a few months to file your case might be enough. Delaying a filing can lower your means test average income enough to qualify you for Chapter 7 bankruptcy.
Find out the downside of filing for bankruptcy.
If you can't pass the Chapter 7 bankruptcy means test, you might qualify for Chapter 13 bankruptcy instead. In Chapter 13 bankruptcy, you propose a plan to pay back a portion of your debts over three to five years. How much you repay will depend on your income, expenses, and the value of nonexempt property.
Although some debtors end up paying only pennies on the dollar towards their nonpriority unsecured debts such as credit cards and medical bills, it isn't always the case. And all Chapter 13 filers struggle to pay the hefty monthly payment.
Even so, Chapter 13 bankruptcy offers valuable benefits. For instance, filers can save a house or car after falling behind on the financing payment. So filing for bankruptcy might still be in your best interest even if you aren't eligible for Chapter 7.
Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.
Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.