In order to determine if you are eligible for a Chapter 7 bankruptcy, you must first take the means test to evaluate your income and debts. Most people facing bankruptcy would rather file a Chapter 7 since it completely removes most debts and you are not required to make monthly payments.
However, if you fail to pass the means test, then you must file Chapter 13. This means that you will be required to make monthly payments for three to five years.
The following are the two main parts of the means test:
- Is your income higher compared to than your area’s median income?
- Do you have enough disposable income left after paying all of your normal living expenses to make payments in a Chapter 13 plan?
When it comes to the first part, you must compare your monthly income to the average monthly income for a household of a similar size in your area. If your income is lower than the median income, then you pass the test and you may proceed with filing for Chapter 7. Even if you are above the median income, you may still be eligible for Chapter 7 if you do not have enough disposable income to fund a chapter 13 plan.