After the United States amended the Bankruptcy Code in 2005, individuals seeking to file for Chapter 7 bankruptcy were required to meet new qualifications before they could begin the bankruptcy process and start working to achieve debt relief. Along with being required to attend credit counseling courses, those filing for Chapter 7 bankruptcy must also pass the means test to determine whether or not they are eligible to receive financial support through bankruptcy.
When you are struggling to make payments on your credit cards or other bills, the stress can affect every part of your life. If you are currently in a significant amount of debt, bankruptcy may be the answer. To learn more about how the means test affects you, contact a Raleigh Chapter 7 bankruptcy lawyer of the Bradford Law Offices, today at (919) 758-8879 and schedule a free consultation.
Understanding the Means Test
The Chapter 7 bankruptcy means test was created to ensure that only those who are in severe financial debt qualify for bankruptcy. The means test considers the following information in determining eligibility:
- The median income of the state compared to the applicant’s income
- Whether not the applicant makes more or less than the median income
- Any disposable income the applicant may have
- Applicant’s monthly expenses
In North Carolina, the median income per month for one person is $3,157 ($37,892 a year) and $5,419 for a family of four ($65,036).
Frequently Asked Questions
Choosing whether to file for bankruptcy can be deeply stressful. To help you understand whether this is the right choice for you, we have provided the answers to some of the most common questions we hear about the means test at our firm below.
What happens if I fail the means test?
If you fail the means test, you still have the option to apply for Chapter 13 bankruptcy as opposed to Chapter 7 bankruptcy. Chapter 13 bankruptcy can still be very helpful in getting your finances back on track, it just means that you have enough disposable income to make the court think you can pay your debt back if given extra time. They would not deny Chapter 7 bankruptcy unless they believed you had the means to make your payments.
If I file for bankruptcy, will I stop getting collection phone calls?
Yes. Once someone has filed for bankruptcy, all collection efforts must stop. This means that while your case is in motion you will not get harassing phone calls, and personal assets will remain safe. For example, your home cannot be foreclosed on and you will retain possession of your vehicle.
How is my income calculated for the purposes of the means test?
Your income for the last six months is reported, added together, and divided by six to establish an average monthly income. Whether this number is lower than the median income for your family size in your state, the amount of disposable income you possess, and your monthly expenses play into whether or not you will pass the means test and be allowed to file for Chapter 7.
Has your office had success with bankruptcy cases in the past?
Bradford Law Offices has existed for over 25 years, and founder and practicing attorney Danny Bradford has successfully represented over four thousand clients in varying financial states in front of bankruptcy courts.
Why was the means test created? And why would someone apply for Chapter 7 bankruptcy if they aren’t in severe financial debt?
The new qualifications were implemented to prevent people from applying for Chapter 7 bankruptcy who don’t actually need it. Chapter 7 bankruptcy is oftentimes favorable to Chapter 13 bankruptcy because it does not have to be paid back. People who fail the means test are left with the option to apply for Chapter 13 bankruptcy, which requires a payment plan made up of monthly installments over three to five years.
Does having children affect my ability to pass the means test and apply for Chapter 7 bankruptcy?
Children are factored into your household size, and the more people in your household, the higher the threshold is for the amount of funds you are allowed to have to still qualify. Having children often makes it easier for you to pass the means test!
Do I need a lawyer for a bankruptcy case, or can I represent myself?
While you are legally allowed to file for bankruptcy without consulting a lawyer, hiring an attorney is highly recommended. This process can be confusing, and if you go it alone you will have to spend hours researching your options. Even after all of that, you could still end up selecting the wrong form of bankruptcy or attempting to file for Chapter 7 when you are not qualified to pass the means test.