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  4.  » What is the Chapter 7 means test?, P.1

What is the Chapter 7 means test?, P.1

| Dec 16, 2015 | Chapter 7 |

We spoke in out last couple posts about how a debtor’s income can impact debt relief both outside of bankruptcy and within bankruptcy itself. As we noted, a debtor’s level of income can affect whether or not he or she is able to successfully keep up with monthly payments negotiated with debtors, as well as whether the debtor qualifies for Chapter 7 relief and what a debtor’s repayment plan will look like in Chapter 13 bankruptcy.

In Chapter 7 bankruptcy, the means test is the tool by which bankruptcy courts determine whether a debtor is eligible for Chapter 7 relief. The idea behind the means test is to prevent abuse of Chapter 7 bankruptcy by those who have an ability to pay back some of their debts.

When a debtor files for Chapter 7 bankruptcy, he or she is required to enter income and expense information, and make certain calculations based on the information that has been entered. The forms relating to the means test are 22A-1 and 22A-2. Together, these forms determine whether a debtor’s income and expenses create a presumption of abuse which could prevent the debtor from obtaining Chapter 7 relief.

Form 22A-1 comprises what is called the Chapter 7 Statement of Your Current Monthly Income. Debtors first fill out this form to determine whether their monthly income is more than the median income for households of the same size in their state. If not, there is no presumption of abuse and the debtor does not have to fill out Form 22A-2.

In our next post, we’ll continue this discussion and look at Form 22A-2, which deals specifically with the Chapter 7 means test. 

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