The Cassidy Law Firm Blog

Monday, March 24, 2014

Middlesex County Chapter 7 Bankruptcy: What Is the Means Test?

If you have made the difficult decision to pursue bankruptcy as a solution to your financial troubles, you likely arrived at that decision after careful consideration and contemplation. The next decision you need to make is which chapter to use for your bankruptcy. As an individual (or married) debtor you could use chapters 11, 12, 13, or 7. Most individuals who are eligible choose to file a chapter 7 bankruptcy because it results in the majority of your debts being discharged, or eliminated, at the end of the process. In order to file a chapter 7 bankruptcy in Middlesex County, however, you must first pass the “means test”.

Prior to the Bankruptcy Reform Act of 2005, it was much easier to file a chapter 7 bankruptcy. As a result, the ability to discharge debts was regularly abused by debtors who had the ability to repay debts but simply did not want to repay them. To prevent that from happening in the future, the “mean test” was incorporated into the 2005 Act. The purpose of the means test is to determine if a debtor has the income to repay debts. The test requires you to perform a number of calculations to determine if your income is at or below the median income for similarly situated households in your geographic area. If it is, you may file a chapter 7 bankruptcy. If it is not, you must use another chapter, typically chapter 13.

If your income is clearly below the median you do not have to perform any additional calculations and may proceed with chapter 7. For debtors whose income is close to the median, there are additional calculations that can be performed that might bring you down to where you need to be to be able to use chapter 7. For this reason, you should always consult with an experienced Middlesex County Chapter 7 bankruptcy attorney before performing the test.

Just because you qualify to file a Middlesex County chapter 7 bankruptcy based on the means test does not mean you are required to use chapter 7. If, for example, you have valuable non-exempt assets you wish to protect or you need the additional time provided by a chapter 13 bankruptcy to catch up on mortgage payments you have the option to proceed under chapter 13. In a chapter 13 bankruptcy, however, you will be required to repay the majority of your debts over an extended period of time.

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