How to Take the Means Test for Chapter 7 Bankruptcy

If you want to file for Chapter 7 bankruptcy, then you will have to take the means test. You'll start by checking your state's median household income.

If you want to file for chapter 7 to get rid of all your unsecured credit card debt and personal loans, then you will need to take the means test. Here's how it works:

1. Calculate Your Average Gross Monthly Income

Your average gross monthly income is a tricky number, and can get you disqualified even if you are unemployed. It's because it goes back six months. So even if you lost your job three months ago and your current average income is zero, your six-month median income might still be too high to qualify. However, if you remain unemployed, your median income will drop each month and with time, you'll qualify.

To calculate you gross monthly income, add up ALL income from the past six months including wages earned, any unemployment, social security, spousal support, investment payments, etc. Take that total and divide it by six (to get monthly income over the past six months).

2. Compare Your Household Income to the Median of Your State

To find out your state's current median income for your household size (it changes periodically), visit the U.S. Trustee's website. If yours is greater than the median, then you might want to talk to a bankruptcy lawyer before you do anything else. You will need to pass the means test to continue with a chapter 7, and there are a lot of deductions you can take to pass it.

If your income is over 200% of the median in your state, then you might have a difficult time explaining to the bankruptcy court and trustee why a Chapter 13 repayment plan wouldn't work for you. Even so, a Chapter 13 payment plan is an excellent way to get out of debt because you still discharge most of your unsecured debts, but you don't take as hard of a hit on your credit score as you would with a Chapter 7 bankruptcy.

3. The Means Test

If your income demands that you take the means test, you will have to show that most of your debts are consumer debts, and not related to a small business. The means test is actually a series of bankruptcy forms that prove your qualification to the court.

Again, you are highly encouraged to talk to a bankruptcy lawyer before you attempt to make any steps towards bankruptcy on your own. A competent bankruptcy attorney will help protect your rights and your assets from the creditors who will be part of your bankruptcy case.

If You Pass the Chapter 7 Means Test

Even if you did pass the means test and are allowed to file for Chapter 7 bankruptcy, it may not be the best option for you. Before filing for any Chapter under the bankruptcy law, you should first consider all the alternatives and the factors that make up your particular situation.  Your best advice would probably come from consulting with a bankruptcy attorney.

If You Fail the Chapter 7 Means Test

In most cases, failing the means test limits your options to filing for Chapter 13 bankrupt, which requires you to make monthly payments over a five-year period of time. Chapter 7 is usually preferred because it doesn't require repayment to your creditors. Nevertheless, filing for Chapter 13 bankruptcy is still the preferred way of handling specific types of problems, particularly curing a default on a mortgage.

your state's median household income for a given size

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