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The Chapter 7 Means Test

What Is This Test?

In order to qualify for a Chapter 7 bankruptcy, you must pass The Chapter 7 Means Test. This Test allows the Court to determine whether or not you have the ability to pay your debts.

The Test is made up of two parts:

1) Part One calculates your current monthly income (CMI) by averaging your income over the past six months before filing for bankruptcy.

2) Part Two compares your current monthly income to the state's median monthly income - monthly income for a similarly sized household in Georgia.

If your income is less than or equal to the state's median income, you may file for Chapter 7 automatically.

If your income is greater than the median income, then you must complete the second portion of the means test. This portion is more multifaceted - it involves deducting all allowed expenses from your income. Whatever is left over after subtracting all allowed expenses from your income is called the difference, also referred to as your disposable income. Your disposable income must fall below a certain amount to pass the means test.

You must include all of your income when calculating the means test. One exception that does affect quite a few people is income received under the Social Security Act. Social Security income does not count as income for purposes of the means test, although it must be disclosed under Schedule I of your bankruptcy petition when you are calculating your budget. It is important to note that if your budget shows significant disposable income each month, you may still be disqualified from filing Chapter 7 even if you pass the means test.

Some Exceptions to the Chapter 7 Means Test

1) Disabled Veterans - must be at least 30 percent disabled and must have incurred more than half of their debt while they were on active duty or otherwise serving homeland defense.

2) Individuals who incurred most of their debts from operating a business - means test will not apply in this situation.

What If I Do Not Qualify?

If you are not able to qualify for a Chapter 7 bankruptcy, you may decide to pursue a Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, you will use some of your income to repay a portion of your debts over a three or five year period, depending on the size of your debts and your income.

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