Individuals Families and
Small Business Owners
People facing financial stress and insurmountable debt may seek to file Chapter 7 bankruptcy. This type of bankruptcy is a federal process that discharges many debts, and provides financial relief. Sometimes called liquidation bankruptcy, Chapter 7 bankruptcy requires that you pass the “means test.” This standard is used to ensure that only those individuals truly experiencing financial hardship remain eligible for this type of bankruptcy. The formula is intended to restrict people with enough disposable income to pay off all or most of their debts from filing for Chapter 7 bankruptcy. At the Bankruptcy Center of Illinois, our DuPage County means test lawyers bring more than 30 years of combined experience to their legal practice and remain committed to helping clients seeking a fresh start.
As a federal court proceeding, Chapter 7 bankruptcy is governed by the Bankruptcy Code. In order for the court to assess whether you qualify for this type of bankruptcy, they must determine if your income meets an objective standard. The “means test” is a formula that prevents debtors with incomes above the threshold from filing for Chapter 7 bankruptcy. The theory is that these individuals are capable of paying off some or all of their debts.
To apply the means test, the court looks at your income to see if it is above the median income in Illinois. The size of your household will affect the amount of monthly income that meets the criteria. If you earn less than the median income, you pass the means test. You would immediately be eligible to file under Chapter 7.
If your income is more than the median family income in Illinois based on your household size, you will need to take more action to determine eligibility for Chapter 7 relief. First, you must determine your disposable income. Subtracting certain monthly expenses from your income will yield your disposable income. If this is more than a specific allowed amount, you will not be eligible for Chapter 7. Substantial expenses can affect your disposable income, such as taxes, health care, a large mortgage and more than one car payment.
However, simply because your financial situation passes the means test does not mean you should pursue a filing for Chapter 7 bankruptcy. Also known as liquidation bankruptcy, Chapter 7 bankruptcy may lead to the loss of property in some cases, and it can negatively affect your credit score. A skilled bankruptcy attorney can help you understand whether you have other options, such as working on payments with a few creditors or filing for Chapter 13 bankruptcy. Repayment of debt over time is a potential option under Chapter 13 bankruptcy. This may be a better fit if you are seeking to avoid foreclosure by curing a default on your mortgage, for example.
The purpose of the means test is to ensure that only those people with limited disposable income file under Chapter 7. Exceptions do exist. For example, disabled veterans who are facing large amounts of debt accrued while on active duty or providing homeland defense are exempt from passing the means test for eligibility for Chapter 7 relief. Their disability rating must be at a specific amount.
Protecting your financial interests is critical and necessitates attention to detail and procedural requirements. Applying the means test to determine your eligibility for Chapter 7 bankruptcy can prove complicated. Additionally, filing for Chapter 7 bankruptcy may not be the right fit for your financial situation. The DuPage County means test attorneys at the Bankruptcy Center of Illinois work with you to determine the best type of bankruptcy based on your specific circumstances. We provide a clear understanding of the process to securing financial relief and help you regain control of your situation. Contact us today by calling (773) 993-0024 or complete our online form.