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Bankruptcy Law Blog

Wednesday, September 30, 2020

How Do I Know if I Qualify For Chapter 7 Bankruptcy?

Filing a Chapter 7 bankruptcy in Alabama can give you the debt relief you need to get a fresh start. However, debtors who file under Chapter 7 must meet income requirements to qualify for a bankruptcy discharge. The bankruptcy discharge is an order from the bankruptcy court that releases your liability for certain debts. Receiving a bankruptcy discharge is the goal of most Chapter 7 bankruptcy cases.

What is the Chapter 7 Means Test?

Chapter 7 cases help individuals who cannot afford to repay any portion of their unsecured debts. They do not have enough money after paying standard living expenses to pay debts. The Means Test is the bankruptcy form that measures your income to determine if you qualify for Chapter 7 bankruptcy.

A debtor is presumed to meet the income qualifications for a Chapter 7 case if the person’s annual median income is lower than the average median income in Alabama for a household of the same size. You use current monthly income to calculate your median income.

How Do You Calculate Current Monthly Income and Annual Median Income?

All household income is used to calculate current monthly income. Even though your spouse may not be filing bankruptcy with you, you must include your spouse’s income when calculating the Means Test. The only income you are not required to include is income from Social Security retirement, SSI, or SSDI.

Current monthly income is based on your income for the six months before filing your bankruptcy petition. You add all income for the past six months and divide by six to calculate current monthly income. You then multiply your current monthly income by 12 to calculate median income.

The Means Test compares the median income for a family of your size in Alabama to your median income. You “pass” the Chapter 7 Means Test and meet the income qualifications for Chapter 7 if your median income is lower than the state median income.

If your income is above the median income in Alabama, you could still qualify to file under Chapter 7 if your debts are primarily business debts or your disposable income is below a specific amount.

Calculating Disposable Income for the Chapter 7 Means Test

Disposable income is the money left over each month after paying living expenses. It is the money you could use to pay your unsecured debts. The second part of the Means Test calculates your disposable income.

National standards limit some living expenses. Housing, utilities, food, clothing, and transportation expenses are based on national standards. Examples of other expenses you can deduct from your current monthly income include childcare expenses, term life insurance, mandatory deductions from wages, and car payments. Extraordinary and unnecessary expenses might not be deducted.

If your disposable income is negative or very low, you can qualify to receive a bankruptcy discharge under Chapter 7.

Contact an Alabama Bankruptcy Lawyer for Help

Calculating the Chapter 7 Means Test can be complicated. You need to ensure that you use the correct figures. A mistake or failure to understand bankruptcy laws could make the difference between passing or failing the Means Test.

An Alabama bankruptcy attorney understands how to calculate income correctly and maximize your expenses to help you meet the income qualifications for a Chapter 7 case. Contact us today.


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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”