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Exceptions to the Chapter 7 ‘means test’

Since the 2005 bankruptcy law reform, most people must pass a “means test” before qualifying for a Chapter 7 bankruptcy discharge. The means test was established in effort to standardize the way judges determine whether filers are eligible for Chapter 7 bankruptcy.

However, like any rule, there are exceptions to the “means test” requirement. Before we discuss ways of bypassing the means test, we will tell you a little more about it.

Essentially, the test is made up of two parts. The first part looks at the person’s average monthly income over the six months prior to filing for bankruptcy and compares it to the state’s median family income. If the person’s income is less than or equal to the state’s median income, the person may file for Chapter 7 bankruptcy. 

If the person’s income is more than the state’s median income the second part of the test takes place. This step involves deducting all allowed expenses and determining whether the filer’s income is high enough to pay some of the unsecured debt back (through Chapter 13 bankruptcy).

If the filer’s income is not high enough to do this, he or she may qualify for Chapter 7. If the income is high enough, the filer does not qualify for Chapter 7 but may decide to pursue Chapter 13 bankruptcy or another alternative.

Now, for the exceptions to the means test requirement:

The first exception is for disabled veterans who incurred more than half of their debt while they were on active duty or otherwise serving homeland defense. The veteran must be at least 30 percent disabled.

The second exception is for individuals who incurred most of their debts from operating a business. The means test does not apply in this scenario.

The third exception is for people with special circumstances such as a serious medical condition, recent job loss or abnormally high rent. Documentation must be provided to the court to prove that an adjustment to income is needed, but the means test must still be met after the adjustment is made.

Talk to an experienced bankruptcy attorney about whether your situation may excuse you from having to qualify for Chapter 7 bankruptcy by passing the means test.

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