Our Bankruptcy Attorney Blog

Many consumers are still able to qualify under Chapter 7 – close to 85%, because they can pass the “means test”. A “means test” was created to screen consumers for their income levels and a large percentage of people have been able to pass this test and continue on to file bankruptcy under Chapter 7.

The means test is based on the gross income of the filer over the last 6 months prior to filing. The consumer’s income is compared to the median income of people in their same state. If the consumer’s income is below the median income they automatically qualify for a Chapter 7 filing. If the consumer has income above the median income they next need to calculate their disposable monthly income (DMI) to see if they can qualify for a Chapter 13 filing. If the consumer’s DMI is less than $100 a month the consumer can file for Chapter 7, otherwise they need to file for Chapter 13.

The outcome of this act is that consumers must undergo mandatory credit counseling and education. They must also incur additional filing fee, attorney costs and are subject to fewer automatic protections. Small businesses have higher compliance costs and if you get categorized as Chapter 13 you will find yourself with an increased amount of debt repayment (compared to before the law was enacted).

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