Chapter 7

• Any individual who desires to file for Chapter 7 is required to take the means test. Chapter 7 is a type of bankruptcy that eliminates your responsibility for paying all the debts that have been discharged by the court. For this reason, it is also known as "debt elimination." Chapter 7 is one of the most common bankruptcy filings, and due to its power of debt elimination, it also requires that you meet various standards to be eligible to file for it. First, you must receive credit counseling from an approved agency within 180 days before you file. Second, you must pass the means test.
  
  

Means Test Definition

• The means test is a test for filing bankruptcy that compares your income to the average income in your state. The idea is that your income would be lower than or equal to the average income of your state, proving your need to file for bankruptcy. To determine whether or not your income is higher than the average, the means test compares your income to that of someone else with a similar family situation. For instance, if you are unmarried and have three dependent children, the state will compare you to the average unmarried person with three dependent children. If you make less money than the average person in your state with the same family situation, you pass the means test.
  
  

How the Means Test Works

• The means test is divided into two phases. Phase 1 compares your income to the average family's income. If your income is higher, Phase 1 shows that you are not in real need of filing and that you have the means to pay your debts if you reorganize yourself. However, the Bankruptcy Code recognizes that there are some exceptions to this rule. Phase 2 looks at your disposable income, which is your total income minus all the expenses you have in a month. As of 2010, if your disposable income is higher than $182, you are not eligible for Chapter 7, but you might be eligible for another chapter of bankruptcy. If your disposable income is lower than $182, then you are eligible for filing Chapter 7.
  
  

Considerations

• One of the main purposes of the means test is to eliminate all the debtors who are not really eligible for Chapter 7. The U.S. federal courts have decided that many people have filed petitions for Chapter 7 without really looking into other options that would be more beneficial to them. The means test exists to make sure that those who file for Chapter 7 are really in need of it. Analyze all of your options and see if there is a better solution for your debt problems before you decide to file.