It is often portrayed that those people in Shreveport/Monroe who seek personal bankruptcy protection are abusing the privilege simply to get out of having to pay their bills. This leads to a stigma being associated with bankruptcy. Yet in reality, federal bankruptcy laws have been structured specifically to prevent people from taking advantage of them (which should imply that one who files for bankruptcy does indeed need the assistance that it offers). One such law has been referenced on this blog in the past: the Chapter 7 means test.
A Chapter 7 bankruptcy remains the preferred option of most seeking bankruptcy protection (indeed, according to information shared by the American Bankruptcy Institute, more than 62% of all non-business bankruptcy cases in the U.S. in 2019 were filed under this chapter). This is due to Chapter 7 offering the option of having certain debts discharged. Yet this benefit is must be qualified for. One automatically qualifies if their household income is less than that of their demographic in their state. If it is not, then the means test is applied.
Per the website for the U.S. Federal Judiciary, the means test includes examining a filer’s aggregate monthly income over a period of five years (minus certain allowed expenses). Abuse of the Chapter 7 bankruptcy privileges is assumed if that amount is greater than $12,850 or 25% of the filer’s non-priority unsecured debt (provided that the amount of that debt is more than $7,700).
Those who do not qualify to file for a Chapter 7 bankruptcy due to the means test are not excluded from seeking personal bankruptcy protection. Typically, they will be advised to file under Chapter 13.