Deciding whether to file for Chapter 7 or Chapter 13 bankruptcy can be difficult, as each option has its own advantages and disadvantages. Before you make your decision, you should know that not everyone is eligible for Chapter 7 bankruptcy. Only people that pass the bankruptcy means test will be eligible for Chapter 7 bankruptcy. Everyone else will only be eligible for Chapter 13 bankruptcy.
What is the means test?
The bankruptcy means test is intended for those with consumer debts to determine whether they have disposable income to put toward their debts. There are two parts to the test.
Part 1: Is your household income below the state’s median income?
First, the test determines whether your household income is below the state’s median income using financial information from the past six months. If your income is below the median, you have passed the means test and will be able to file for Chapter 7 bankruptcy. According to the most recent chart published by the Department of Justice in 2020, in Maryland, the median income was approximately $70,964 in households with one earner and $93,255 in households with two earners.
Part 2: Is your disposable income low enough?
While most debtors pass the first part of the test, there are some that do not pass but still want to file for Chapter 7 bankruptcy. In such cases, you will be allowed to deduct certain necessary or ‘allowable’ expenses from your income to determine your disposable. Standardized expenses, as well as some of your actual expenses may be deducted. Some of these expenses may include:
- Childcare expenses
- Out-of-pocket health insurance costs
- Child support/spousal maintenance
If you have enough disposable income to make payments to unsecured creditors, you may not be eligible for Chapter 7 bankruptcy and may need to restructure your debts and make payments after filing for Chapter 13 bankruptcy. A bankruptcy attorney in the Landover area can help you understand the complexities of the Means Test and assist with the bankruptcy filing process.