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What is the Chapter 7 means test?

If you are facing mounting bills and the constant threat of creditor action, personal bankruptcy may offer you the best pathway to stopping you from sliding deeper into debt and instead re-establishing yourself financially in Grayslake. A Chapter 7 bankruptcy offers the benefit of having certain debts discharged, freeing up additional resources to help you in settling others. Yet this is a benefit that is not extended to all; you must first qualify via the Chapter 7 means test. 

The first step in the means test is determining your current monthly income. If yours falls below the average for your particular demographic in your state, you do not need to go any further; you automatically qualify to file under Chapter 7. If, however, your income is above the state average, then the second stage of the means test is applied. 

Your income is projected out over a five-year period. Then, certain allowable expenses (e.g. mortgage or rent payments, utilities) are subtracted from that total. According to the website for the Federal Judiciary, if that amount is greater than $12,850 or 25 percent of your nonpriority unsecured debt (provided that amount is at least $7,700), then you do not qualify. 

Yet failing to qualify due to the means test does not mean bankruptcy is not an option for you (or even bankruptcy under Chapter 7). If you are able to show that there should be special exceptions to your case that merit additional adjustments to your monthly income, you may still qualify. If you absolutely cannot qualify to file under Chapter 7, and Chapter 13 bankruptcy is them available to you. This affords you similar protections to Chapter 7 provided that you repay your debts over a designated time frame (typically 3-5 years).