How does the “means test” for Chapter 7 bankruptcy work?

On Behalf of | Dec 30, 2021 | Chapter 7

People in different financial circumstances may qualify for different kinds of personal bankruptcy. Chapter 7 bankruptcy is likely the fastest path to a discharge for someone with high levels of unsecured debt. It doesn’t require a repayment plan but rather the liquidation of non-exempt personal assets before discharge.

There are income limitations that apply to Chapter 7 bankruptcy. Higher-earning individuals may not qualify to file a Chapter 7 bankruptcy and may need to consider a different form, like Chapter 13 bankruptcy. Currently, the way people qualify for a chapter 7 filing is by passing a means test.

Determining whether or not you can pass the means test in Connecticut will help you decide which kind of bankruptcy is the better choice for your situation.

What does means testing involve?

The means test requires that you show your income is average or low based on what other people make in the state where you live. You have to look at your annual adjusted income based on the last six months. You can make deductions for certain allowable expenses. You then have to compare that figure to the Connecticut median income amount for a household of the same size as yours.

If you are single and have no dependent children, you can qualify for Chapter 7 bankruptcy with an adjusted income of $69,244. If you have a spouse or one child, the limit increases to $90,268. Someone with three people in their family can qualify with income of up to $103,544, while a four-person household could qualify with an income of $130,975. Bigger families can add another $9,000 for each additional member.

What if your income is over but close to the limit?

Some people may find themselves right on the cusp of qualifying for Chapter 7 bankruptcy. These individuals would likely benefit from a closer review with a professional. Adjusting your income is one of the most important parts of the means test, and it is easy for someone with no experience to make a mistake and overlook expenses that might reduce their household income to a level that qualifies.

Learning about the different kinds of personal bankruptcy can help you decide if Chapter 7 is right for you.