People who have considered filing for bankruptcy have probably heard of the bankruptcy Means Test. Back in 2005 Congress amended the laws related to bankruptcy and put in place new laws that they thought would force more people into a chapter 13 bankruptcy rather than a chapter 7 bankruptcy.
Simply put, the means tests looks at your household size and your monthly income and compares this to the typical income of received by a household of your size in your state. If you make more than the typical household of your size, then there is a good chance you won't be able to file chapter 7 bankruptcy.
Many people want to file a chapter 7 bankruptcy because it has two distinct advantages over a chapter 13 bankruptcy: first, it is much shorter. The typical chapter 7 bankruptcy case takes about 4 to 6 months. Chapter 13 cases take a minimum of 3 years and typically are about 5 years long.
Next, a chapter 7 bankruptcy will eliminate most of your unsecured debts, such as credit cards, medical bills, etc. In a chapter 13 bankruptcy you are required to pay a portion of these debts back.
So what if you want to file a chapter 7 bankruptcy but make too much money? There are still some exemptions available that will permit those people who make more than is allowed to still file a chapter 7 bankruptcy.
If more than half of your debts are business related, you don’t have to complete the means test. For many small business owners this means that you can file for chapter 7 even if you wouldn’t qualify based on income.
An important point to remember here is that you must include your mortgage debt into the equation. For instance, if you have $300,000 of debt, at least $150,000.01 of it must be related to your business. If it is, then you can file a chapter 7 bankruptcy.
The next exception applies to disabled veterans, reservists, and members of the National Guard.
Disabled veterans are not required to complete/pass the means test so long as the debts that are being discharged were incurred primarily while you were on active duty or as part of homeland defense. If you meet these requirements you will likely qualify for a chapter 7 bankruptcy even if you make more than the current limits.
If you served as a Reservist or a National Guard member after September 11, 2011 and served for at least 90 days, then the Means Test will not be applicable for your situation.
If you have questions regarding qualifying for a chapter 7 bankruptcy or the means test, I offer a free 30 minute telephone consultation where you can get more information about your particular situation.