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When filing for Chapter 7 Bankruptcy, most if not all of your assets are ordered sold by the Courts. When Trustee sells these assets, the proceeds are used to repay creditors. In other words, Chapter 7 Bankruptcy often means losing the assets you own.

Whenever someone files for Bankruptcy, he or she is subjected to a Means Test to determine whether the filer can indeed qualify under Chapter 7 or Chapter 13 bankruptcy rules. Here, we examine points that are specific to the Chapter 7 means test.

As far as the Courts are concerned, the Chapter 7 Means Test starts with the following measurements:

1. The debtor’s average income of the last 6 month. 2. Then, the average personal income is compared with the per head average income of the state. Suppose, the median personal income of a person is $20,000. Now, if the debtor’s personal income is below $20,000, then Chapter 7 can be applied to him/her. And if the debtor’s income is greater than the median ($20,000) then further steps of means test are carried out.

If the average personal income is greater than the median, then the Chapter 7 means test proceeds further. This includes the following:

1. Calculations are made where the Courts will subtract allowable expenses from your actual income figure. This should produce more of a disposable income figure. With this more-accurate figure, the Courts will multiply it by 60 to get a total income value for the next 5 years. 2. Another comparison is made where the Courts will stack your 5-year income against the State’s median income. If your amount exceeds the median’s by $10,000, then you do not qualify for Chapter 7 (although you would most likely qualify for Chapter 13). In the event, however, that your 5-year figure exceeds the median, but your monthly income falls short, then you still qualify.

As well, your disposable income should not exceed 25% of your unsecured debt. If it does, then you will not qualify for Chapter 7 Bankruptcy (Chapter 13 might still be an option).

In short, while applying for Chapter 7, calculate the average personal finance income and determine if you are above or below the state median. If you are unable to complete this on your own, no worries; a bankruptcy trustee or attorney will need to complete them anyway. Likewise, if you find your are close, it will still be worthwhile to speak with a professional if this is the route you choose.

As well, you will want to review the impact that Bankruptcy will have on your life in the short- and long-term. If you have the means to repay your debt, you will want to explore such options before causing irreparable damage to your financial life.