Changes to Chapter 7 Bankruptcy Means Test

If you are considering the possibility of filing for Chapter 7 bankruptcy, you may know that you need to meet certain requirements in order to show your eligibility for this type of bankruptcy. Back in 2005, changes to U.S. bankruptcy law made it more difficult for consumers to be eligible for Chapter 7 bankruptcy, which is a type of liquidation bankruptcy. Those changes to the law were designed to prevent abusive bankruptcy filings in situations where the debtor actually has the means to repay some of the debt that they are seeking to discharge. In practice, however, those changes to the law have made the bankruptcy process more difficult and complicated for many debtors in Oak Park and across Illinois.

The U.S. Department of Justice recently issued changes to median household incomes, which will result in changes concerning which debtors will need to take the “means test” in order to qualify for Chapter 7 bankruptcy in the U.S. We want to tell you more about these changes and to encourage you to seek advice from an experienced Oak Park bankruptcy lawyer about your case.

Looking at Your Income in Relation to the Median Income

Unless more than 50% of your debt is non-consumer debt or you are a qualifying veteran or service member, you will need to take the means test in order to determine whether you are eligible for Chapter 7 bankruptcy. The first part of the means test requires a comparison of your income to the median income in your state and for your household size. You can locate the median income for your state and your family size by visiting the U.S. Trustee website, choosing “Means Testing Information,” and selecting “Data Required for Completing the 122A Forms and the 122C Forms.” You will then need to choose the drop-down menu item for “11/1/20 and after”—the median incomes were just updated, making it possible for more consumers filing for bankruptcy after November 2020 to qualify for Chapter 7 bankruptcy.

For purposes of the means test, you determine your income by looking at the last six months prior to filing for bankruptcy and divide that amount by six. The total you get is your average monthly income. If you multiply it by 12, that amount is your average annual income for purposes of taking the means test, and you can use that number to compare to the median annual household income for your household size in Illinois. If your income is below the median income based on state and household size, then you will pass the means test and you can move forward with a Chapter 7 bankruptcy case. For anyone filing for Chapter 7 bankruptcy on or after November 1, 2020, the median income for Illinois based on household size looks like this:
  • 1 household earner = median annual income of $57,983;
  • 2 people in the household = $76,602;
  • 3 people in the household = $91,581; and
  • 4 people in the household = $107,226.
For household sizes of more than four, add $9,000 to the total median annual household income for each additional person.

Seek Advice from a Bankruptcy Lawyer in Oak Park

Even if your annual income is at or above the median annual household income, you may still qualify for Chapter 7 bankruptcy. One of the experienced Oak Park bankruptcy lawyers at our firm can speak with you. Contact the Emerson Law Firm today.


See Related Blog Posts:

New Study Addresses Racial Disparities and Consumer Bankruptcy

Is There More Than One Type of Consumer Bankruptcy?

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