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What should you know about the Chapter 7 bankruptcy means test?

Tennessee residents whose financial challenges have reached the degree that they are considering filing for personal bankruptcy might think that Chapter 7 bankruptcy is often the easiest solution to their issues. It is a useful way to get out of debt. However, while it is a relatively easy process to understand, there are certain rules that govern it. The "means test" is one that should be examined in depth so the person is prepared.

The means test is a basic standard by which it will be decided if the debtor can file for Chapter 7. There are certain debtors who can bypass the means test. It is not applicable if a disabled veteran amassed debt while he or she was on active duty or providing homeland defense. The disability rating must be a minimum of 30 percent and greater than half the debt must have been accrued while on active duty. Regardless of income and expenses, the disabled veteran can file for Chapter 7.

For others, the debtor's average income per month for the previous six months will be examined. It is compared to the median income for a family in the state. If it is less than or equal to that amount, the person can file for Chapter 7. However, it is important to remember that it might be later decided that the income surpasses the amount to file for Chapter 7 and a Chapter 13 bankruptcy will be used. Chapter 13 is a repayment plan that extends for three to five years. If a debtor does make more than the state's median income, there is a second step to the means test. The debtor will have certain expenses that are allowed. If there is enough to pay some of the unsecured debt, the debtor cannot use Chapter 13.

There could be special circumstances that can bypass the means test. These can include becoming unemployed, having a medical issue or a rent that is exceedingly high. Documentation must be provided to prove this is the case. People who are having financial issues for any reason, from unexpected life changes to loss of employment to medical expenses, can consider Chapter 7 bankruptcy. The means test is an integral part of this and having help with it is key. Discussing a case with an attorney who is experienced in the bankruptcy process can help.

Source:, "The Bankruptcy Means Test," accessed on Sept. 5, 2017

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Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

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