Many consumers in Shreveport, Louisiana, consider bankruptcy when they don’t see a way out of debt. As you contemplate the decision to seek bankruptcy protection, one of the most important choices you will make throughout the entire process is what chapter you will file under. Like most of the clients that we work with here at Simon Fitzgerald LLC work with, your desire to seek bankruptcy protection likely does not come from wanting to avoid repaying your debts; rather, you simply hope to re-establish yourself on firm financial footing.
For many, Chapter 7 bankruptcy offers that fresh start. This form of bankruptcy offers the potential for the complete discharge of certain debts, which is why it’s the most popular type of personal bankruptcy in the United States. However, not everyone qualifies automatically.
What is the Chapter 7 Means Test?
A Chapter 7 bankruptcy remains the preferred option of most seeking bankruptcy protection. In 2005, Congress made several changes to the bankruptcy code under the Bankruptcy Abuse Prevention and Consumer Protection Act. One of the most significant additions was the “means test,” which determines whether a filer has too much disposable income to qualify for Chapter 7.
The first part of the test compares your household income to the median income in Louisiana for a household of the same size. If your income is below the median, you qualify automatically.
As of November 2024, the median income limits in Louisiana are:
- 1-person household: $52,139
- 2-person household: $67,303
- 3-person household: $76,364
- 4-person household: $95,232
If your income is above the median, the means test moves to a second phase, which subtracts allowed expenses from your gross income. These allowable expenses—defined by IRS National Standards—can include rent, mortgage payments, utilities, transportation, food, clothing, and medical care. The purpose of this calculation is to determine whether you truly lack the means to repay your debts.
RELATED: How does the means test account for my expenses and debts in Louisiana?
According to the Administrative Office of the U.S. Courts, if your projected five-year income is more than either $12,850 or 25% of your non-priority unsecured debts, then you may not qualify for Chapter 7. The system is designed to prevent high-earning filers from using Chapter 7 to discharge debts they could afford to pay.
Failing The Means Test – What Are Your Options?
Failing the means test does not mean bankruptcy is no longer an option. You may still be eligible to file under Chapter 13. This type of bankruptcy involves a repayment plan spread over three to five years, allowing you to pay back a portion of your debts while protecting certain assets.
To proceed with Chapter 13, you must have sufficient income to meet the repayment plan and stay within debt threshold limits. If your current income disqualifies you from Chapter 7 but you expect a drop in income in the coming months, you can wait to retake the means test. Since the calculation looks at the previous six months of income, timing your filing can make a difference.
Questions? Contact Our Chapter 7 Bankruptcy Lawyers
Bankruptcy doesn’t have to be embarrassing or seen as a negative. It’s a legal step meant to give people a second chance. At Simon Fitzgerald LLC, we know that seeking bankruptcy protection is a responsible, often necessary choice for those who want to take back control of their finances. Whether you qualify for Chapter 7 or need to consider Chapter 13, there are options available to help you move forward. Get in touch with our bankruptcy lawyers – Contact us today.
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