Chapter 13 Bankruptcy Means Test

The Bankruptcy laws of the country demands you to perform a “means test” to identify where you fare in bankruptcy. It is the means test that defines whether an individual is eligible for Chapter 7 or repayment under Chapter 13. The “means test” is a mathematical formula that defines your stand in Chapter 7 to prevent any legal abuse from erupting in the bankruptcy system.

It consists of two tests, with the outcome of the first determining the need for the second. As an initial measure, the median test computes your average household income for the past six months or the “Current Monthly Income” and makes its comparison with the median income of your state. Any debtor whose income falls below the median income qualifies for Chapter 7. But, where your income falls above the median income, you need to probe your financial condition further.

The law states that where your CMI is higher than the median for your state, then, you have to compute the monthly “disposable income.” The disposable income is the income you have after deducting your expenses. It is the disposable income that defines your capacity to pay off the creditors according to the repayment plan under Chapter 13.

When you file for bankruptcy, an automatic stay emerges naturally that places a stop to the actions by the creditors. On the calculation of the disposable income, if you are left with at least $10,950 you are denied Chapter 7 and will have to proceed with repayment through Chapter 13. Another circumstance that denies you from Chapter 7 is when you are capable of paying $6,575, which is 25 percent of your outstanding dues to the creditors. But, where it has been found that your disposable income falls below the stipulated rates of $110 per month, then that makes you a candidate qualified for Chapter 7.

To conclude, the means test defines your payment criteria for Chapter 7 and Chapter 13 under the bankruptcy laws.