Means Test: if you need bankruptcy protection or a fresh start, and are considering a Chapter 7 or Chapter  13, then the Means Test must be considered. The Means Test helps determine which chapter is more appropriate for your household income. However, it is not the only factor to consider.

We will conduct a Means Test for you at your FREE initial consultation.

In Brief:

  • A Chapter 7 is a liquidation of non-exempt assets
  • A Chapter 13 requires a payment plan rather than liquidation

 

The Bankruptcy Code under §342(b) requires that notice be given to individual consumer debtors. Parts of the notice pertaining to Chapter 7 and Chapter 13 are reprinted below:
 
Chapter 7: is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors whose debts are primarily consumer debts are subject to the "means test," which determines your eligibility for a Chapter 7. If your income is greater than the median income for your state of residence and family size, in some cases, the United States trustee (or bankruptcy administrator), the trustee, or creditors have the right to file a motion requesting that the court dismiss your case under § 707(b) of the Bankruptcy Code.
Under chapter 7, you may claim up to a given amount of your property as exempt under governing law. A trustee may have the right to take possession of, and sell, the remaining property that is not exempt, and use the sale proceeds to pay your creditors.
The purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny your discharge, and, if it does, the purpose for which you filed the bankruptcy petition will be defeated.
Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you may still be responsible for most taxes and student loans; debts incurred to pay non-dischargeable taxes; domestic support and property settlement obligations; most fines and penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, theft, or from willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.
 
Chapter 13: is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. You are eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.
Under Chapter 13, you must file with the court a plan to repay your creditors all or part of the money that you owe them, using future earnings. The period allowed by the court to repay your debts may be three years or five years, depending on your income and other factors. The court must approve your plan before it can take effect.
After completing the payments under your plan, your debts are generally discharged except for domestic support obligations; most student loans; certain taxes; most criminal fines and restitution obligations; certain debts which are not properly listed in your bankruptcy papers; certain debts for acts that caused death or personal injury; and certain long-term secured obligations.
Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you may still be responsible for most taxes and student loans; debts incurred to pay non-dischargable taxes; domestic support and property settlement obligations; most fines and penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.