Chicagoans who are considering filing for Chapter 7 bankruptcy must qualify by passing the “means test.” The purpose of the test is twofold: limit the use of Chapter 7 to individuals who cannot pay their debts and divert those who can into Chapter 13 bankruptcy. Given the challenge of passing the means test, the best way to protect your interests is to consult an experienced bankruptcy lawyer.
Chicago Bankruptcy Clinic is dedicated to guiding clients through Chapter 7 bankruptcy proceedings. While Chapter 7 allows you to discharge your debts and make a fresh start, the means test can be a significant roadblock for many individuals. When you become our client, we will take the time to explain the means test, carefully assess your finances, and put you in a position to qualify for Chapter 7 bankruptcy.
We understand the financial burdens facing you and can help to lift those burdens by providing you with informed representation and caring, efficient service. Get in touch with our office today so we can start working on your case.
How Does the Chapter 7 Means Test Work?
The full means test involves a number of steps. Many filers are eligible for Chapter 7 after the first step, however, which compares your current monthly income to median income for a household of a similar size in Illinois.
If your current monthly income is less than the median, you pass and can proceed with a Chapter 7 filing. While this seems straightforward, determining current monthly income (CMI) can be complicated. You should know that CMI is not your actual current income, but rather your average monthly income, for the six months prior to the month in which you will file for bankruptcy.
In addition, CMI includes all sources of income, such as:
- Gross wages
- Net income from a business or professional practice
- Rental income
- Interest, dividends and royalties
- Pension/retirement income
- Unemployment compensation
- Spousal maintenance/child support
At Chicago Bankruptcy Clinic, our legal team will assist you with compiling all the necessary financial information and proactively determine whether you pass step one of the means test. This requires comparing your CMI to the relevant median income (the necessary median income data is compiled by the Census Bureau, which is available the U.S. Department of Justice website).
If you qualify, we will then assist you with completing and filing the necessary means test form, Chapter 7 Statement of Your Current Monthly Income (Form 122A-1), with the court. Our bankruptcy attorneys will also provide ongoing counsel until your Chapter 7 bankruptcy is discharged.
What if My Income Is More than the Median?
If your monthly income is greater than the comparable median income, you may still be eligible for Chapter 7 bankruptcy. This requires completing and submitting an additional form, Chapter 7 Means Test Calculation (Form 122A-2).
This part of the means test determines whether you have enough disposable income to repay some of your debts. Disposable income is the amount you have left each month after deducting “allowed” expenses based on your geographical area. These are standard expenses such as housing, food, clothing, medical care, and transportation.
If your disposable income is less than a certain amount (currently around $100 per month in Illinois), you pass and are eligible to file Chapter 7 bankruptcy. If your disposable income is over a certain amount (currently around $160 per month), your bankruptcy may be converted to a Chapter 13 filing.
For those whose income falls between these thresholds, there is another complicated test that compares your predicted disposable income to your unsecured debt. To qualify for Chapter 7 under this test, your predicted income must be greater than 25 percent of your debts.
In sum, completing the means test calculation can be complicated and confusing. Working with an experienced bankruptcy attorney can mean the difference between qualifying for Chapter 7 bankruptcy and having to file a reorganization bankruptcy.
Exemptions from the Means Test
Most debtors seeking Chapter 7 bankruptcy protection in Chicago will need to complete the full means testing process to qualify, however, there are a few exemptions:
- The means test is not required if the majority of the filer’s debt is business, tax or other non-consumer debt.
- National Guard members and reserves who (1) are on active duty and (2) have been activated for at least 90 days are exempt from the means test.
- Disabled veterans are exempt from means testing.
If you believe you qualify for an exemption, our bankruptcy attorneys can help you file the required Statement of Exemption (Form 122A-1 Supp) with the court; all other filers need to complete the means test.
Contact Our Chicago Bankruptcy Attorney
At Chicago Bankruptcy Clinic, we believe that an educated client is our best client. When you consult with us, we will explain how the means test affects your particular situation and determine whether filing Chapter 7 bankruptcy is the right option for you. By understanding your circumstances and objectives, we tailor our legal services to your unique needs.
Ultimately Chapter 7 bankruptcy is well-suited for financially distressed individuals with no assets. Our bankruptcy attorneys will walk you through the means test, assist with completing the necessary means test forms, handle all court filings and help you obtain a discharge of your debts. Above all, we will provide you with trustworthy advice and stand by you every step of the way.
Chicago Bankruptcy Clinic offers free consultations, affordable payment plans, and a comfortable environment in which you can make objective decisions about your financial future. If you are considering filing for Chapter 7 bankruptcy, contact our office today to speak with one of our qualified bankruptcy attorneys.