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When a consumer is looking to file bankruptcy, there are certain chapters that a person can file bankruptcy under. To determine which chapter you're eligible to file under, you have to take the "Means Test". The Means Test is a way to deteremine where your average monthly income for a family of your size compares in respect to the calculated median for other familys of the same size in the same geographical area determined by the state. If your monthly income is less than the median income for your size and area, you automatically pass the Means Test and do not need to proceed any further. If your monthly income is higher than the median, you must take the Means Test to determine how much "disposable income" you have left over to pay secured creditors. The more disposable income you have, the less likely you are to be approved to file under a chpater 7.
Filing under chapter 7 is primarily used for those who do not make enough monthly income to repay their current debts in a reasonable amount of time, and therefore their assets are liquidated to pay off creditors and most unsecured debts are forgiven. If you fail to pass the Means Test, you are still eligible to file bankruptcy, however you must file under a different chapter.
Those who cannot file under chapter 7 generally file under chapter 13, which is a reorganization of assets. Instead of liquidating assets and paying off creditors with what you currently own, a monthly plan is established to pay back creditors in a 3-5 year time frame.
To determine you current monthly income, divide your annual income by 12. To determine your annual income, take your monthly income and multiply by 12.
Go to Justice.gov Means Testing and click on the most recent date of filing to get the most up-to-date and accurate information. Then click on Median Family Income Based on State/Territory and Family Size and compare your data to the state's to determine if your monthly income is higher or lower than the median
If you provide 50% or more of their living expenses, you may count them as apart of your household
There are three situations where passing the Means Test is not mandatory to be eligible for chapter 7 bankruptcy.
If the majority of your debt (over 50%) is Non-consumer debt, or debt that was accrued resulting from a business aspect, you do not have to take the Means Test. Consumer debt is defined as a debt incurred by an individual for primarily personal, family, or household purposes. Anything else is non-consumer debt.
So What's Considered Consumer Debt?
If the money was used for personal expenses, it's likely to be considered consumer debt. Therefore purchases for household appliances, personal items, and money spent on anything non-business would be considered consumer debt.
Disabled veterans that have a disability rating of at least 30% and the majority of debts occured while on active duty, do not have to take the Means Test to be eligible to file chapter 7 bankruptcy.
Members of the military reserve or national guard for the time they are on active duty or performing homeland defense activities for at least 90 days.
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