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Chapter 7 Bankruptcy and the Means Test

Determining  whether or not to file for bankruptcy can be a difficult and drawn out decision. There are several factors that someone should consider when making this decision, and experienced professionals should be on hand to assist in the process. The two main types of bankruptcy are Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 bankruptcy can allow an individual to dispose of their debt at a more rapid pace than Chapter 13 bankruptcy. Chapter 7 is a form of bankruptcy protection that is usually classified as liquidation bankruptcy. A person’s assets which are considered non-exempt will be sold, liquidated, and the profit from those sales will directly benefit creditors associated with the filing.

Assets are categorized as exempt and non-exempt items. Common items that are deemed exempt, which means they cannot be liquidated in the bankruptcy filing, include earned damages, cars, and clothing. Non-exempt items can include stocks, second vehicles, and cash, but these are ultimately determined by an appointed bankruptcy trustee.

If an individual determines that Chapter 7 bankruptcy protection is the right course for them, they must first pass the means test in order to be considered for this type of protection. If an individual earns an income that is considered to be lower than the median income of their state, then they do not have to pass the means test and can proceed with the Chapter 7 bankruptcy filing. All other individuals must pass this test before they can file.

The means test is a comparison test in some regards, as it compares an individual’s earned monthly income to the state’s average income. If the income is determined to be higher than the median, a person’s net income is then calculated. If the net income of an individual can be used to successfully pay off debt within the five year time frame associated with Chapter 13, then the individual is not allowed to file for Chapter 7 bankruptcy. If the net income could not complete this requirement, then the person filing will then be allowed to continue with the Chapter 7 bankruptcy filing.

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505 20th St N #1220
Birmingham, AL, 35203
Phone: (205) 324-4000
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Greenway Bankruptcy Law, LLC All rights reserved. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. The following language is required pursuant to Rule 7.2, Alabama Rules of Professional Conduct. No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

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