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The Chapter 7 'means test'

Although the means test has been part of a Chapter 7 bankruptcy filing for around a decade now, many residents of Salem, Massachusetts, who are contemplating a Chapter 7 filing may still not entirely understand how the test works.

For purposes of a Chapter 7 bankruptcy, the means test effectively excludes those whose income is over a certain amount from taking advantage of a Chapter 7 liquidation bankruptcy. Instead of being able to simply walk away from their debts after surrendering some property, they will, instead, be effectively forced into a Chapter 13 repayment plan.

Most people who file for a Chapter 7 bankruptcy must show that they meet the means test, and are thus allowed to file for Chapter 7. The big exceptions to this rule are those who are carrying mostly business debt as opposed to personal consumer debt and those who are disabled veterans and meet other eligibility requirements.

To satisfy the means test, a person must provide detailed information about their family income over the previous six months. If they do not make more than the so-called "median" income for their family size, then the means test is satisfied. Otherwise, the person must also break down their expenses over the previous six months. Unless the test indicates that a person has "disposable" income to pay off their debts, then they will satisfy the means test.

Although most people have to file paperwork related to the means test, this does not mean that the paperwork will only be glanced at by government officials. It is very important that the details of a person's income and expenses be spelled out correctly.

Source: Findlaw, "The Bankruptcy Means Test," Accessed October 5, 2015

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