New Chapter 7 Means Test Requirements

In order to file Chapter 7 bankruptcy, you must first pass the bankruptcy means test. The means test is tied to the median income in your state.

The median income is the center line of incomes in your state. Each year, the US Department of Justice releases the median incomes to be used in evaluating Chapter 7 eligibility. Essentially, you should be eligible to file Chapter 7 if your annual income is at or below the state median.

On Nov 1, these new incomes go live, and they may affect whether you can file Chapter 7 bankruptcy.

In most states, the changes are minor, with the incomes moving up or down by only a few hundred dollars.

View the new state median income tables.

But in some states, the median incomes have been adjusted by several thousands of dollars. If you weren’t eligible to file last year, it’s possible that you are eligible this year.

The economic troubles of the past year have had a clear effect in several states. In places like Nevada, Arizona and Michigan, the state median income levels fell for single-earners and families.These states have been among the hardest hit during the current recession.

This is also a good time to remind people that while you must pass the means test in order to file Chapter 7 bankruptcy, the requirements are very inclusive.

The median incomes adjust for family size, and, in some cases, you may be able to earn more than $100,000 in a year and still be eligible to file.

In 17 states, a single earner may make $45,000 or more and still be eligible to file. For each non-earning family member, the income allowance typically goes up $10,000 or more.

So if you’re under the impression that you earn too much to qualify for Chapter 7 bankruptcy, you may want to take a look at the new numbers and think again.

The Chapter 7 means test is designed to keep people from abusing the system – not stop them from getting debt relief. If you’re dealing with out-of-control credit card bills, phone calls from creditors, massive medical debt or more, then you may want to take a serious look at how Chapter 7 bankruptcy might help.