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How the bankruptcy means test determines Chapter 7 eligibility
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How the bankruptcy means test determines Chapter 7 eligibility

| Apr 16, 2021 | Bankruptcy, Chapter 7 |

Most people who file for bankruptcy in Louisiana do so through either a Chapter 7 or a Chapter 13 format. There are some important differences between the two types of filings, including how long they take, how they work and how you qualify for them. If you wish to move forward with a Chapter 7 bankruptcy filing, you first need to take and pass a means test.

Per NerdWallet, the bankruptcy means test compares your household income against that of other people living in your state and examines additional factors to determine how much “disposable income” you have.

Defining “disposable income”

Disposable income is the money you have leftover after paying for basic living expenses, such as your home, food and clothing. The amount of disposable income you have available to you must fall below a certain threshold for you to qualify for a Chapter 7 bankruptcy.

Understanding the steps in the means test

The bankruptcy means test has two steps, both of which help determine how much disposable income you have. The first step involves assessing whether your household income from the last six months is lower than the median household income in Louisiana. If it is, you pass automatically and do not need to worry about step two.

If your household income is the higher of the two, the next step involves you gathering comprehensive documentation about your income and expenses from the past six months. You then have to figure out what expenses are “allowable” and how much you have leftover after paying them. The figure you come up with determines whether you may move forward with a Chapter 7 filing.

If you fail to qualify for Chapter 7, you always have the option of waiting to see if circumstances change. You may take the means test again once six months have passed.

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