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How can I figure out if I qualify for Chapter 7 bankruptcy?

If you consider filing for bankruptcy, a test outlined in the U.S. Bankruptcy Code makes figuring out if you qualify, along with determining which chapter of bankruptcy you should file, fairly simple. If you want to file for bankruptcy, you must complete the “means test.” 

Purpose of the means test

If you are looking at bankruptcy for personal debt relief, the options most often used by individuals include Chapter 7 and Chapter 13. Both of these options offer you a fresh financial start if you meet certain requirements. Chapter 7 accomplishes this through the liquidation of assets and debt discharge, while Chapter 13 does this through setting up a debt repayment schedule. The U.S. Bankruptcy Court uses the means test to determine which of these two bankruptcy options applies to your situation.

What information do I need to complete the means test?

To complete a means test, you will need to gather your personal financial information (income and expenses) and determine the median income for your state.

I've taken the means test; now what?

After you fill out the means test, you then determine which type of bankruptcy you qualify for, if any. As of 2015, the average median household income in Wisconsin was just over $55,000. If your income is less than that, you will likely qualify for Chapter 7 bankruptcy. If your income is higher, the test assumes that you should file Chapter 13.

In some cases, individuals with income higher than the state's median will still qualify for Chapter 7. At the end of the day, it’s all about disposable income. If your disposable income -- money left after paying allowable expenses – isn’t enough to take care of your debt obligations, you may file for Chapter 7. Allowable expenses include:

  • Transportation fees
  • Food
  • Clothing
  • Utilities
  • Reasonable housing accommodations

Sometimes it’s difficult to determine whether an expense fits into one of these categories.

It’s not always as simple as it looks. Ask for help.

For those living in Wisconsin, a variety of debt relief options could help you through your financial struggles. The means test merely points you in the right direction by helping you determine which type of bankruptcy you could file if that option serves you best. With the assistance of a skilled bankruptcy attorney, you can determine the course of action that will help you achieve a fresh financial start free from the stress and frustration that overwhelming debt causes.

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