About The Bankruptcy Means Test

If another firm has told you that since you are over on the Means Test, you MUST be a Chapter 13. If you would rather file a Chapter 7  – CALL US NOW 303.893.0833 – before you go any further – this is our specialty.  Let us review your situation.

The Chapter 7 means test is a formula applied to determine whether or not the consumer should have enough money available to make some minimal payment to creditors in a Chapter 13 repayment plan.

The goal is to reserve Chapter 7 bankruptcy for those who really have no means to pay and to push those who have available income into Chapter 13 bankruptcy plans, so that their creditors will receive at least partial payment.

Step One: Median Income Comparison

The first step in the Chapter 7 bankruptcy means test is simple: it compares your income to the median income in your state for a family the same size as yours.

The median income for your family size may differ dramatically depending upon where you live, and we can tell you whether you are above or below the applicable median income.

Check out the District of Colorado Bankruptcy Court Link.

If your income is higher than the median income, it doesn’t necessarily mean that you can’t file for Chapter 7 bankruptcy; it just triggers the second step in the test. This is our specialty.

Step Two: Calculating Disposable Income and Unsecured Debts

The second step is a bit more complicated, and actually breaks down into separate pieces itself.

Certain allowable expenses (determined by IRS guidelines) are subtracted from your income to find your “disposable income.”

If your projected disposable income over the next five years totals less than $6,000 ($100/month), you likely “pass” and can file under Chapter 7.

If your disposable income is greater than $10,000 over the next five years, a presumption arises that you don’t really need to file for Chapter 7 bankruptcy and you may only be allowed to do so if you can demonstrate special circumstances.

In the gray area between $6,000 and $10,000, yet another calculation is often required.

This one compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible.

If your disposable income over that five years is greater than 25 percent of your unsecured, non-priority debts, you’ll probably find yourself in the same circumstances as if you’d had more than $10,000 in disposable income.

If your disposable income over a five year period is less than 25 percent of your unsecured, non-priority debts, you will likely “pass” the means test.

Although you may already have some information about filing bankruptcy in Colorado, we will probably begin by asking you basic but important questions about your income, debts, assets, and financial goals.

Your answers will help determine if you should file Chapter 7 or Chapter 13 bankruptcy.