The Means Test: Do I Automatically Qualify For Chapter 7 Bankruptcy?

Bankcrupty Chapter 7 text on Document form and Gavel isolated on office desk.

Many individuals are still financially struggling to recover from what has been described as one of the worst economic climates since the great depression of the 1930s. In this current era of financial hardship, Chapter 7 Bankruptcy is seen as an alternative for individuals unable to find a solution to their debt problems. Chapter 7 Bankruptcy, otherwise known as straight liquidation, is where assets not protected by the law are collected by the trustee and sold to pay all or part of what is owed to the creditors. Unlike Chapter 13 Bankruptcy, there is no repayment plan in Chapter 7 Bankruptcy. Once the trustee sells your unprotected assets, your remaining outstanding debts are discharged.

Prior to October 17, 2005, Bankruptcy Judges were largely responsible for determining whether or not a debtor met Chapter 7 filing requirements. When President Bush signed into law “The Bankruptcy Abuse Prevention and Consumer Protection Act,” debtors were automatically deemed eligible to file Chapter 7 Bankruptcy if they met certain criteria, in particular the means test. Failure to meet the new criteria, forces the Bankruptcy Court to convert the Chapter 7 case into a Chapter 13 case. Below you will find the means test criteria, which must be met in order for you to be automatically eligible to file Chapter 7 Bankruptcy:

The Bankruptcy Means Test

This test is used in order to determine your automatic Chapter 7 Bankruptcy eligibility. If your current yearly income is less than the median income for a household of your size in your state, you pass the means test. Bankruptcy law determines your income by looking at your household income during the six full calendar months before your Bankruptcy filing. The following are the median yearly amounts for the state of Illinois:

  • Household of 1: $47,485
  • Household of 2: $59,861
  • Household of 3: $68,721
  • Household of 4: $80,776
  • For Each Additional Dependent Member In the Household: Add $8,100[i]

**It should be noted, that if your debts are primarily business debts, then you will not be subject to the means test and will automatically qualify for Chapter 7 Bankruptcy.

If you pass this test, then you are automatically eligible to file Chapter 7 Bankruptcy. If your household income exceeds the state median, DON’T BE ALARMED, YOU CAN STILL QUALIFY TO FILE CHAPTER 7 BANKRUPTCY. In order to determine if you are still able to file Chapter 7 Bankruptcy after not passing the test above, complex computations need to be made in order to assess your potential Chapter 7 Bankruptcy eligibility. These complex computations are aimed at calculating your monthly disposable income. These calculations involve determining your allowed expenses. These allowed expenses vary from county to county and household size. Some of the expenses commonly allowed are for example: grocery expenses, mortgage payments, and transportation expenses. There can potentially be a big difference between filing Bankruptcy in Chicago and filing Bankruptcy in Joliet.

Free Consultation with a Chicago Bankruptcy Attorney

Bankruptcy is a complex process. Whether you think you are not eligible for bankruptcy, earn too much money, or just need to hear advice, contact us! For more information about Chapter 7 Bankruptcy FAQs, contact one of our distinguished Chicagoland bankruptcy attorneys at the Law Office of William J. Factor!