Changes to the bankruptcy law in 2005 added a “means test.” The means test keeps filers with higher incomes from filing for Chapter 7 bankruptcy. Some people believe you must be completely broke to file chapter 7, but that is not the case. Actually, most people who would have qualified before the changes, will still qualify under the new law.
The means test deducts specific monthly expenses from the debtor’s income to find the debtor’s “disposable income.” The higher the disposable income, the harder it is to file Chapter 7 bankruptcy. The first step is to compare the debtor’s income to the median income of the state in which the debtor resides.
Qualifying under the means test does not guarantee on qualifies for Chapter 7 bankruptcy, but it is the important starting point. If a debtor does not pass the means test, he/she may seek protection under a Chapter 13 bankruptcy.
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