Can I Pass the Means Test to File for Chapter 7 Bankruptcy?

If you are an individual (and not a business) who is thinking about filing for Chapter 7 bankruptcy, you need to know up front that you will need to be able to pass the “means test” in order to be eligible for Chapter 7 bankruptcy in Oak Park. The means test was instituted as part of the bankruptcy reforms that occurred in 2005 to prevent individual consumers who have the ability to repay debts from obtaining a swift discharge. The drafters of the bankruptcy reform measure thought it would be abusive to allow a consumer who earns a regular paycheck to have assets liquidated. When you are considering Chapter 7 bankruptcy, which is a liquidation bankruptcy, you are probably wondering, “Can I pass the means test?”

We want to give you more information about the means test, and to clarify what your options might be in the event that you cannot pass the means test to file for Chapter 7 bankruptcy.

Determining Household Income
In general, the first step toward passing the means test is to calculate your household income and to determine whether it is below the Illinois median income. You can determine your household income for Chapter 7 bankruptcy purposes by averaging your overall monthly income from the last six months. Then, you take that average number and multiply it by 12 to determine your average household annual income. You must then compare your average household annual income with the Illinois median income. If your average income is below the Illinois median income, then you have passed the means test, and you are able to file for Chapter 7 bankruptcy.

The median household income in Illinois is based on household size. As of May 1, 2020, the median income for a household size of 1 was $54,877 per year, or $4,573.08 per month. The median income increases for each additional household member. For example, the median income for a household size of 2 is $72,593, while the median income for a household size of 3 is $83,759. You should check with a bankruptcy attorney to determine whether your household income alone can allow you to pass the means test and file for Chapter 7 bankruptcy.

Document Your Expenses and Income
As an article in NerdWallet explains, if you do not qualify for Chapter 7 bankruptcy based on your income alone, then you will need to gather substantial income and asset documentation from the last six months. You will need to document your expenses for rent, clothing, medical costs, food, bills, and other necessary items. You will then need to work with a bankruptcy attorney to determine whether the money that is leftover—your disposable income—is sufficiently low enough that you can pass the means test and qualify for Chapter 7 bankruptcy.

Seek Advice From an Oak Park Bankruptcy Lawyer
If you have too much disposable income to pass the means test, you may still be able to qualify for Chapter 13 bankruptcy. If you have questions about Chapter 7 eligibility or filing for Chapter 13 bankruptcy if you cannot pass the means test, one of our Oak Park consumer bankruptcy lawyers can help. Contact the Emerson Law Firm today for more information.



See Related Blog Posts:

Benefits of Filing for Bankruptcy

Personal Risks in a Small Business Bankruptcy

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