If your days include financial stress and dodging debt collector calls, you may need to consider filing for bankruptcy. For those with overwhelming debts and little income, Chapter 7 often is the best option to pursue a fresh financial start. But to qualify, you must pass the Chapter 7 bankruptcy means test.
Because bankruptcy law is complex, contacting the Cleveland Chapter 7 bankruptcy attorneys of Luftman, Heck & Associates should be your first step. Attorneys Matthew L. Alden and Patrick Miller are seasoned debtor advocates whose mission is helping restore you to financial wellness. To schedule a free consultation of your case, contact us today at (216) 586-6600.
Understanding the Chapter 7 Bankruptcy Means Test
Because Chapter 7 discharges your debts and creditors get very little to nothing in the process, you must go through a means test to determine if you qualify. This test is designed to make sure those with higher incomes don’t qualify and instead pay some portion of their debts through a Chapter 13 plan.
The Chapter 7 bankruptcy means test will determine if your income falls below the median income for you as an individual, or for your family size. Your bankruptcy attorney will gather the relevant information, ask questions regarding family size, and determine if you have any exemptions to the means test. Typically, the calculation is straightforward, but in some cases, the process can be complicated and involve multiple steps.
For cases filed after April 1, 2019, the following Ohio median income applies:
- One-Member Household – $49,624
- Two-Member Household – $62,308
- Three-Member Household – $74,969
- Four-Member Household – $89,454*
*Add $9,000 for each household member after four.
If your income is below those amounts, you can file for Chapter 7 automatically and do not have to continue the means test. If your income exceeds this threshold, the test continues by calculating your average monthly household income over the sixth months prior to filing for bankruptcy. After determining this amount, you must calculate your annual monthly income for the purpose of the means test by multiplying the monthly amount by 12.
For example, say it’s September when you meet with us for a free consultation, and you indicate your income last year was $53,000. You are an individual filer with no other household members. Your income would be above the threshold for a presumptive Chapter 7 filing. But pursuant to the Chapter 7 bankruptcy means test qualifications, we ask for your previous six months income, and it is:
- March – $5,000
- April – $5,000
- May – $3,000
- June – $2,000
- July – $1,000
- August – $1,000
The six months added together is $17,000. Divided by six is $2,833.33 for an average monthly income. If you multiply that amount by 12, the annual average income is $34,000, which is well below the single-filer median for Chapter 7. In this situation, we would pursue a Chapter 7 filing on your behalf.
Exemptions for the Chapter 7 Means Test
Usually, everyone interested in filing Chapter 7 must undergo a means test. But the law does provide for some exemptions to income testing. You may file without a Chapter 7 bankruptcy means test if:
- Your debts are related to business, taxes, or other non-exempt debt. In other words, you carry mainly non-consumer debt.
- You are a disabled veteran (at least 30 percent disability that arose from in the line of duty) whose debts were incurred while on active duty.
- You are a reservist or National Guard member on active duty at least 90 days. You are exempt from the means test for that 90 days, plus 540 days thereafter.
Contact a Chapter 7 Bankruptcy Lawyer for Help
Financial issues are not shameful. They are just a part of life that can bring unexpected expenses or loss of income. Bankruptcy exists to give people a chance to start over with a clean financial slate. Call attorneys Matthew Alden and Patrick Miller at Luftman, Heck & Associates today at (216) 586-6600, or reach out online for a free consultation.