Before you file your petition for a chapter 7 bankruptcy your Minneapolis bankruptcy lawyer will administer a bankruptcy mean test. This test will reveal whether you have the available income to pay your debts on a monthly repayment schedule.
If you are unable to offer monthly repayment due to a lack of disposable income, you have passed the means test and may file for chapter 7 bankruptcy after consulting your Minneapolis bankruptcy attorney. Failure of the test will result in your inability to file for chapter 7 bankruptcy but you will still be able to file for chapter 13 bankruptcy.
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The Bankruptcy Means Test: How Does it Work?
The bankruptcy means test analyzes six months of average monthly income accrued prior to your filing. The test will guide you to look at your monthly income to see if it is below your state's median income level. Since this is set by state, it is best to consult with an expert in Minneapolis bankruptcy law regarding the median income level for Minnesota. If you are below the median, you may proceed with filing Chapter 7.
If your income rests above the median level for your state, you must determine your disposable income on a per-month basis. You must then use a worksheet to generate a budget depicting your expenses including utilities, clothing, medical, gas, auto, mortgage, and food. On the worksheet, deduct the monthly expenses total from the monthly income total. The remaining amount indicates your disposable income per month.
Higher disposable income reduces your chances for qualifying to file chapter 7 bankruptcy. The courts would prefer to establish an agreement for repayment of those debts using your disposable income. Doing so qualifies you for chapter 13 bankruptcy.
Chapter 7 Bankruptcy Means Test Failure
Chapter 7 allows for debt to be discharged from your record. If you fail the test, however, you do have alternative options and will not necessarily be saddled with an amount of debt if you are unable to pay that mount.
If you file for chapter 13 bankruptcy, the court will adjust, monitor, and review your budget. You will be required to repay debtors over a five year period. Any balance remaining after the five years of repayment will be discharged by the court. The court will ensure that you are able to make basic payments for necessities such as food and clothing.
The bankruptcy means test exists to prevent abuse by debtors who are able to pay off their debts. Bankruptcy is a life-changing decision that should only be approached with the assistance of a Minneapolis bankruptcy law professional.
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