Bankruptcy Can Offer The Relief You Need

Breaking down the Chapter 7 Means Test

On Behalf of | Jan 3, 2022 | Bankruptcy, Chapter 7

For those in Mississippi seeking personal bankruptcy protection, filing under Chapter 7 remains an attractive option. This particular form of bankruptcy allows for the discharge of certain types of debt after one’s case. This reason alone is why most seek to file under Chapter 7.

Yet federal lawmakers do not want people abusing this benefit. Thus, one must qualify to file under this chapter. Many come to us here at the Fava Firm questioning how they might know whether this is an option for them. The criteria for qualification is commonly known as the Chapter 7 Means Test.

The two-pronged qualification criteria

According to information shared by the Administrative Office of the U.S. Courts, two distinct steps comprise the Chapter 7 Means Test. The first is a comparison of one’s current monthly income to that of their particular demographic for their state. If it is less than the median amount, they automatically qualify to file under Chapter 7. If it is over that amount, then they progress on to the next step of the test.

That step includes projecting one’s monthly income out over five years. If that amount is greater than either 25% of their nonpriority unsecured debt (minus certain allowable expenses), or $12,850, then they fail to meet the criteria to file under Chapter 7.

What happens if one fails?

Failing to meet the qualifying criteria for a Chapter 7 bankruptcy does not exclude one from seeking personal bankruptcy protection, however. Rather, the court often recommends that one convert their petition over to a Chapter 13 case. This allows for the protection from further collection efforts by creditors while one seeks to repay their liabilities over 3-5 years.