To File Bankruptcy There is a Means Test, What is it and How is it Applied?

While Chapter 7 is known as the "liquidation" bankruptcy, many Chapter 7 cases are "no-asset" cases, meaning the debtor doesn't have any nonexempt assets and therefore doesn't have to liquidate or lose anything. Since a Chapter 7 can discharge or wipe out large amounts of unsecured debt such as credit card debt, it was prone to abuse at times.

In order to determine whether a presumption of abuse arises, all individual debtors with primarily consumer debts who file a Chapter 7, are now required to take the bankruptcy means test.

On October 17, 2005, the Bankruptcy Code was significantly amended. There had been a concern that many people were filing Chapter 7 bankruptcy when they had the ability to repay much of their debt in Chapter 13. Congress decided to establish what's called means testing to determine whether a debtor is presumed to have the ability to file bankruptcy in Chapter 7.

The first question is whether or not the household income averaged over the prior six-month period, and based upon its current sized, exceeds the median income for households in that specific community. If the median income was less than the average, a person is presumed to be able to file. If the median income is above, then there is a formula to determine whether or not a person is presumed to be filing in good faith.

Means testing takes into consideration many factors including taxes, automobile ownership and payments, mortgages, charitable giving, health insurance, health care, and many other factors. It is highly recommended that an experienced bankruptcy attorney run the means test, as it is very easy to make an error. Simply determining who is to be included in a household has become a question that is often in dispute.

To find out if your income qualifies you for a Chapter 7, take advantage of our free case evaluation. Please contact an Orlando bankruptcy lawyer at Richard A. Heller, P.A. You can reach us at (407) 501-4052.

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