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What is the Chapter 7 Means Test?

In 2005, the Bankruptcy Code was amended. Part of the amendment included a formula to be used by the courts to determine if an individual is eligible to file a Chapter 7 case. This formula is referred to as the "means test." The purpose of the means test is to prevent people from abusing the bankruptcy process and discharging debt when they really can afford to pay their creditors. The means test formula is applicable to consumers who have personal debt (not business debt).  The formula is applied if the individual's income is greater than the state's median income for the applicable household size.  The debtor is also allowed numerous expenses to be deducted from his/her income.  Examples of expenses which can be deducted include standard of living expenses, some transportation costs, education expenses, and charitable contributions.  Once those deductions are made, the amount remaining is multiplied by 60.  If the leftover total is under $10,000 or over $6,000, and it also amounts to 25% or more of the debtor's non-priority unsecured debt, the court will designate the filing with a presumption of abuse. The above paragraph probably makes your head spin just reading it, but an experienced bankruptcy attorney can walk you through the means test step by step and help you understand how it applies to you. It is also important to note that if your income is below the state's median income or if you are a disabled veteran and the debt was incurred while you were on active duty, the means test is not applied to you. If you are considering filing a Chapter 7 bankruptcy, you should discuss the means test with an attorney at Levitt & Slafkes. If you are interested in learning more about Chapter 7 bankruptcy cases or the means test, contact Levitt & Slafkes, P.C. We are experienced in handling a variety of bankruptcy issues. Our offices are conveniently located in South Orange, New Jersey. Please call us at 973-323-2953 or online to schedule your free initial consultation.

 

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