More About the Ch 7 Bankruptcy Means Test
The “means test” determines whether you qualify to file for Chapter 7 bankruptcy in Washington or Oregon. It is generally designed to keep people who can afford to pay back some or all their debt from filing a chapter 7 bankruptcy. However, such high-income people can still take advantage of a Chapter 13 Bankruptcy in most cases.
The good news is that you do not need to dead broke or unemployed to qualify for ch 7 bankruptcy. In fact, you can have a relatively high income and still qualify for ch 7 bankruptcy if your expenses are also high. For example, you could be making much higher than the median household in your area but if you are also paying a big mortgage payment, huge car payments and have a large tax burden, you still may qualify for a ch 7 bankruptcy.
How Does the Chapter 7 Means Test Work?
Basically, the ch 7 means test takes your current monthly income and subtracts off your expenses or the amount that the IRS allows as a standard expense. What is left over is called your “disposable income”. You can have a little disposable income and still qualify for ch 7 bankruptcy but the more disposable income you have, the more likely it is that you will need to file a chapter 13 bankruptcy instead.
Is Your Income More Than the Median?
For some, qualifying for a ch 7 bankruptcy is as simple as your actual income being below the median household income for your area. If it is, the rest of the means test is likely unnecessary. You should be able to file a ch 7 bankruptcy without any problem.
What if you have Disposable Income?
This is a complicated question and why the means test exists. Some disposable income is OK but if it looks like you have enough disposable income to pay back a portion of your debt, you may need to file a chapter 13 bankruptcy instead. How much disposable income is allowed varies from case to case depending on several factors. But, don’t worry, an experienced ch 7 bankruptcy attorney can help you maximize the chapter 7 bankruptcy means test to give you the best chance of success. If you must file a chapter 13 bankruptcy, our bankruptcy attorneys can help you to prepare your petition and payment plan. In most cases you pay back only a small fraction of your actual debt.