What to Do If You Fail the Chapter 7 Means Test

In order to file for bankruptcy protection under Chapter 7, you must be able to show that your average monthly income for the six months prior to your bankruptcy filing is below the median income for a household of your size in your state. This is because Chapter 7 bankruptcy is meant for people with low incomes who face substantial consumer debt, such as credit cards, personal loans and mortgages, that they likely will be unable to repay in any significant degree.

Step 1: Is a Means Test required?

The first question to be resolved is whether the means test is required. If your debt is mainly business related, you do not have to pass the test, even if you are filing a personal Chapter 7 bankruptcy. You may also avoid the test if you are a disabled veteran or military reservist, though there are limitations to these exemptions.

Step 2: Options if you fail a Means Test

If you do not pass the means test, your first course of action should be to recalculate your figures. You may have overestimated your income by including items that are exempt — for example, stimulus payments under the CARES Act. You may have left out or underestimated “allowable expenses” such as food, clothing, medical care and other necessities. These expenses are deducted from your total income to show your disposable income, i.e., what you can pay your creditors. The more deductions you can legitimately claim, the less disposable income you will have. You also may have misstated your household size. The larger your household, the greater your threshold to pass the means test.

Another possible cure for failing the means test is simply to wait. If you were recently laid off otherwise incurred a reduction of income, your average monthly income may be sufficiently lowered by waiting a few months and taking the means test again.

If you have determined that you can’t pass the means test and that postponing it will not achieve a better result, you still have another option: filing for bankruptcy protection under Chapter 13. This provision is designed for people with steady incomes and debt under certain levels who can pay off a portion of what they owe over a three- to five-year time period. In a Chapter 13 bankruptcy, you propose a repayment plan, which has to be reviewed and approved by the court. At the end of the plan period, any remaining unsecured debt is discharged. A major advantage of Chapter 13 is that it can allow you to keep your home by paying off your mortgage arrears over the life of the plan.

You should consult an experienced Georgia bankruptcy attorney if you are considering filing for Chapter 13 protection. From offices conveniently located in Athens, Douglasville, Gainesville, Lawrenceville, Marietta and Scottdale, Jeff Field & Associates is able to help people with bankruptcy matters throughout the Atlanta metropolitan area and beyond. To schedule an appointment call 404-381-1278 or contact us online.