Over the last few weeks, our blog has been examining how anyone looking to file for Chapter 7 bankruptcy must first pass a two-part bankruptcy means test designed to measure their disposable income.
In our last post, we discussed the first part of the test, which is structured to determine whether the prospective filer’s household income over the last six months is below or above the median income for their state. In today’s post, we’ll finish examining this topic by taking a closer look at the second part of the test, which provides a second chance to those who fail the first part.
What does the second part of the bankruptcy means test entail?
If your household income is found to be above the median income in the first part of the test, you can still qualify for Chapter 7 bankruptcy by passing the second stage, which is designed to measure your “allowable expenses” over the previous six months.
Specifically, these allowable expenses, which include things like rent, groceries and clothes, are subtracted from your household income and if the remaining amount (i.e., disposable income) is low enough, you would likely qualify for Chapter 7.
It’s important to note that this is a fairly complex process and, as such, it can prove beneficial to consider consulting with an experienced legal professional.
What expenses are permitted?
As we mentioned above, this is a complex issue. In general, local and national standards used by the Internal Revenue Service help determine what can be classified as allowable expenses.
What if my allowable expenses are sufficiently high?
If your allowable expenses are sufficiently high, it means that you are clear to file for Chapter 7 bankruptcy, which can discharge the majority of unsecured debts (credit cards, medical bills, etc.).
What if my allowable expenses are not sufficiently high?
If your allowable expenses are not sufficiently high, you will be unable to file for Chapter 7. However, you will have the option of filing for Chapter 13, paying off your debts over a three- to five-year timeframe.
Furthermore, you can also take the bankruptcy means test again in six months.
If you have questions about the bankruptcy means test, Chapter 7 bankruptcy or Chapter 13 bankruptcy, consider speaking with a skilled legal professional.
