Passing the means test for a Chapter 7 bankruptcy

On Behalf of | May 30, 2019 | Bankruptcy |

There are many people living in Alabama who are struggling with debt. Often this debt was accrued as a result of circumstances beyond the person’s control — such as losing a job or a serious illness or injury. Instead of feeling overwhelmed by debt, many people ultimately choose to file for Chapter 7 bankruptcy. To qualify for this, they must first past a means test.

In the past, courts could use a great deal of discretion to determine whether a person qualifies for Chapter 7 bankruptcy. However, the Bankruptcy Protection Act of 2005 changed these standards. As part of the changes mandated by this law, petitioners are now required to pass a means test.

The first step looks at the debtor’s income for the six months prior to the filing. If his or her average income is less than or equal to the state’s median income, the means test is passed; however, a bankruptcy trustee could ultimately recommend that a Chapter 13 repayment plan is appropriate. If petitioners make more than the median, they move on to the second step of the means test which looks at disposable income after allowable expenses are deducted.

Even if petitioners in Alabama fail the means test, they could ultimately have a successful Chapter 7 bankruptcy filing if they are experiencing — and can provide the documentation to prove — special circumstances such as the recent loss of a job or a serious medical condition. Unfortunately, the process can seem overwhelming to those who have never gone through it before. Often, a successful petition means the difference between a less stressful life with a clean financial slate rather than being weighed down by overwhelming debt. Fortunately, there are experienced professionals who can help those with such debt seek a path that is most appropriate to their individual circumstances.