No one in Long Island is immune to the potential of financial struggles. Such struggles often result in mounting debt, which can make it more and more difficult for one to re-establish themselves on a firm financial footing. A Chapter 7 bankruptcy might afford one the chance to get their financial life back in order by allowing some of their debts to be discharged. It is for this reason why Chapter 7 is the most popular form of personal bankruptcy. The American Bankruptcy Institute reports that as recently as the third quarter of 2019, over 61% of bankruptcy cases were filed under this chapter.
Yet in order to file under Chapter 7, one must first qualify. The federal government does not want to privilege afforded by a Chapter 7 bankruptcy to be abused. Thus, it has established a means test to determine whether those seeking such a bankruptcy indeed do not have adequate resources to repay their liabilities.
According to information shared by the website for the Federal Judiciary, the first step in the Chapter 7 means test is to compare one’s current monthly income to that of the state median for their demographic. If it is below it, then they qualify to file. If not, then their monthly income is projected out over a period of five years. If what they take home is more than $12,850 every month, or more than 25% of their non-priority unsecured debt, then they fail the means test. This does not necessarily mean that they can no longer seek bankruptcy protection; rather, they will likely need to convert their case over to a Chapter 13, which offers protection from collection efforts while they repay their debts over a period of three to five years.