Do I qualify for Chapter 7 bankruptcy?
Chapter 7 bankruptcy is an important legal option that can provide Michigan residents with a way to eliminate many of their burdensome debts. However, Chapter 7 bankruptcy is not available to all debtors. To qualify for Chapter 7 and its protections, a debtor must pass the means test. This post will discuss the means test and what it requires. No legal advice is offered in this post, and readers should always speak with their trusted bankruptcy attorneys about their Chapter 7 questions.
Step 1 of the means test
The first part of the means test requires a debtor to find the average of their income for the six months prior to their bankruptcy filing. Once they have computed the average, it is compared to the median income of the state in which they live. If their average income is equal to or less than the median income of the state, then they can file for Chapter 7. If it exceeds the median income, they do not qualify. Qualifying debtors may see their Chapter 7 proceedings converted to Chapter 13 bankruptcies later if their trustees find that their incomes are sufficient for repayment.
Step 2 of the means test
If a debtor does not qualify for Chapter 7 bankruptcy based on the comparison of their income to that of their state’s median income, they may still have options. If they can show they would qualify after deducting all allowable expenses from their income, they may still be able to pursue Chapter 7 bankruptcy. If not, they may be better served by pursuing other debt relief or bankruptcy paths.
Understanding bankruptcy qualifications can be complicated and can require sophisticated calculations. To prepare oneself for bankruptcy, it is a good idea to learn as much as possible about the process before it begins. A trusted bankruptcy attorney can be a valuable partner for a debtor as they begin their bankruptcy journey.