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What happens during means testing for Chapter 7 bankruptcy?

On Behalf of | Jan 21, 2025 | Chapter 7

Chapter 7 bankruptcy is the fastest form of individual bankruptcy available. Filers can complete the entire process in just a few months in many cases. Chapter 7 bankruptcy offers immediate relief from collection activity and the potential to discharge eligible debts.

Chapter 7 filings are also subject to strict income limitations to prevent abuse of this powerful legal tool. Individuals hoping to file for Chapter 7 bankruptcy have to pass a means test first. Only after performing and passing the means test can individuals proceed with the Chapter 7 filing.

Not everyone who hopes to file for Chapter 7 bankruptcy successfully completes the means testing process and qualifies. What does means testing generally entail?

Filers must adjust and compare their income

Chapter 7 means testing involves comparing the filer’s income to the median income reported for households of the same size in their state. The Department of Justice supplies figures for median income that people use as their point of comparison.

Filers can reduce their income by deducting certain expenses from their household income. Typically, filers use their last six months of income and extrapolate that to determine annual income. After calculating their adjusted annual income, they can then compare that figure with the state median.

Individuals considering Chapter 7 bankruptcy often need help with the means testing process. They may also need support optimizing their exemptions to protect their property during the Chapter 7 process.

Having assistance throughout Chapter 7 bankruptcy proceedings can help streamline the process and help people optimize the relief they gain by filing. A means test is one of several elements of Chapter 7 bankruptcy that people may need assistance navigating.