Means Test Forms and the Chapter 7 Bankruptcy Process

While you would want to have your debts discharged or wiped out through a Chapter 7 bankruptcy case, you must first meet certain requirements before you can file for bankruptcy under this chapter.

An individual having financial problems with medical debts or credit card debts would likely declare consumer bankruptcy (in contrast to business bankruptcy). Aside from bankruptcy protection, this is preferred by some since it allows certain types of debt to be discharged. Before one can proceed with filing for bankruptcy under Chapter 7, however, he or she must first pass what is called the means test. 

The bankruptcy means test determines if debtors have sufficient disposable income that can be allocated to pay off what is owed to a creditor. Here, your local attorney will likely take care of bankruptcy forms and other paperwork that will be submitted to and evaluated by the bankruptcy court. This article will explore three forms that are necessary for this bankruptcy procedure, how the test affects bankruptcy cases, and how legal aid from bankruptcy lawyers would make filing a lot less stressful.

1) The first is Form 122A-1, or a Chapter 7 Statement of Your Current Monthly Income. It includes your income for the last six full months before your bankruptcy filing. Your monthly income will then be compared to the state median income. Under the bankruptcy code, if it is below the median, you will pass the means test. This means you will be able to file for bankruptcy under Chapter 7.

 2) The second is Form 122A-2, or a Chapter 7 Means Test Calculation. According to bankruptcy law, if your income is above the median, you will have to accomplish the second form. Allowed living expenses such as utilities, taxes, insurance, or mortgage payments will be deducted from your gross income. This will determine if you have sufficient disposable income to repay what you owe to a lender. If you pass, you may proceed with filing Chapter 7, and your debts from certain creditors may be included in the bankruptcy discharge. If you don’t, you might have to declare bankruptcy under Chapter 13.

(What you put in the means test will also play a part when filing bankruptcy under Chapter 13. Your monthly income will determine the period indicated in your debt repayment plan. According to relevant bankruptcy laws, your payment plan will likely run for three to five years, depending on if your income is below or above the median income.)

3) The third form is used to report an exempt status. Exemption to the means test often applies to disabled veterans filing a bankruptcy petition, a debtor who was in the service during a specific time, or those with mostly business debts (in contrast to consumer credit debts). 

Filing bankruptcy may be daunting for some especially because of the amount of paperwork involved. An oversight in the documentation can result in a dismissal of your bankruptcy filing. It is a smart move to seek the advice of experienced bankruptcy attorneys in Illinois. For any questions on the means test and filing a Chapter 7 bankruptcy case, call us at Cutler & Associates, LTD for reliable legal help and assistance.