What is the Chapter 7 means test?
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What is the Chapter 7 means test?

| Oct 7, 2020 | Bankruptcy

As you ponder the decision to seek personal bankruptcy protection in Nevada, you will inevitably arrive at the question of which form of bankruptcy to file. If your hope is that your bankruptcy will bring you some much-needed debt relief, then a Chapter 7 bankruptcy may bring just that. Indeed, this is the most popular form of personal bankruptcy due to the benefit it offers of having certain debts discharged. 

Yet it is due to the potential of discharging debts that federal law dissuades people from abusing it. This dissuasion comes in the form of the Chapter 7 means test. 

Breaking down the means test

The means test compares your actual income to both others in your demographic as well as your current debt situation to try and determine if you might be attempting to abuse the privilege that Chapter 7 offers. It starts by taking a close look at your aggregate monthly income. If it is less than the median income for your particular demographic in your state, then you automatically qualify to file under Chapter 7. However, if it is not, then the court projects your income out over a period of five years. According to the website for the Federal Judiciary, if that income projection (minus certain allowed expenses) is more than either $12,850 or 25% or your nonpriority unsecured debt (provided the amount of that debt is more than $7,700), then you fail to qualify. 

If you fail the means test

So what happens if you fail the means test? This does not mean that personal bankruptcy is no longer an option for you. Instead, the court may mandate that your case roll over into a Chapter 13 filing. This would afford you the bankruptcy protection you seek with the promise that you will repay your debts over a period of 3-5 years.