Pierce & Shows, APLC

How the bankruptcy means test determines Chapter 7 eligibility

As one of many people across Louisiana struggling with finances, you may be working through your options and trying to determine whether filing for bankruptcy might help you begin to dig your way out of debt. If you do decide to move forward with a personal bankruptcy and wish to do so with a Chapter 7 filing, you will first need to pass a bankruptcy means test. At Pierce & Shows, APLC, we recognize that the results of your bankruptcy means test will determine whether you can move ahead with a Chapter 7 bankruptcy. We have helped many people facing similar situations figure out whether a Chapter 7 bankruptcy or an alternative option might better suit their needs.

According to NerdWallet, those who take the means test and find out that they are ineligible for Chapter 7 bankruptcies may still be able to move forward with a Chapter 13 bankruptcy. While there are some key distinctions between the two types of filings, the main difference is that a Chapter 7 bankruptcy involves debt forgiveness, while a Chapter 13 involves restructuring your debts so you can pay back at least part of them.

So, how does the means test work, exactly? There are two main components. The first part of the test is fairly simple, and it involves seeing how your household income compares to the median household income in Louisiana. If yours is the lower of the two, you automatically qualify for a Chapter 7 bankruptcy.

If yours is not the lower of the two figures, you will have to take the second part of the means test if you still wish to try to qualify for a Chapter 7 filing. You will need to start securing documentation about your expenses from the last six months, and you will then need to figure out how much of your income goes to necessities, or "allowable expenses," and how much remains afterward. The amount of money you have after paying your allowable expenses will determine whether you can move forward with a Chapter 7 filing, or if you should start exploring other options. You can find more on this topic on our webpage.

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