WARNING: Just Because You Pass the Means Test Does Not Mean You Should File Bankruptcy – Talk to an Attorney for Free Before You File Pro Se.
What is the Chapter 7 Means test?
The Chapter 7 Bankruptcy Means Test determines who can file a Chapter 7 Bankruptcy and receive a discharge of his or her debts. The Means Test takes into account your income, expenses, and household size. The above form will ask for basic information to see if you may qualify under the second prong of the means test. The form uses the numbers from the United States Trustee Program website from 5/1/2020 provided which is hosted by the United States Department of Justice: Data Required for Completing the 122A Forms and the 122C Forms to determine your eligibility. This data is normally updated in November, April, and May every year. So, if you are viewing this data in October 2020 or later, double-check the above site for current data.
Do I have to Take the Chapter 7 Means Test?
Military Exemptions to the Means Test:
Not everyone is required to take the means test. If you are a Disabled Veteran with a 30% rating you can fill out form Official Form 122A─1Supp section parts 1 and 2 to avoid the means test.
A temporary provision allowed active military, Reservists or members of the National Guard to avoid taking the Means Test if you were called to active duty or performed a homeland defense activity under the below conditions:
- If you were called to active duty after September 11, 2001, for at least 90 days and remain on active duty or were released from active duty on a date fewer than 540 days before you file for bankruptcy.
- You have been performing a homeland defense activity for at least the last 90 days or you had performed a homeland defense activity for at least 90 days which ended at least 540 days before you file for bankruptcy.
This as only a temporary exclusion, and was set to sunset if Congress did not renew it.
Non-Consumer Debt Exemption to the Means Test
If more than 50% of your debt is non-consumer debt, you are not required to take the means test. Consumer debt is defined in 11 U.S.C. § 101(8) as “incurred by an individual primarily for a personal, family, or household purpose.”
Examples of Consumer Debt:
- Credit Card Debt – Unless it is Business Credit Card used only for Business
- Auto Loans – Unless it is a business vehicle only used for business
- Personal Loans
- Home Loans
- Elective Cosmetic Surgery
- In some cases Student Loans
- This list is not exhaustive. If you have Questions talk to an Attorney for Free.
You would need to fill out Official Form 122A─1Supp and attach it with Form 122A-1 when you file for bankruptcy. All of the official bankruptcy forms can be found at: https://www.uscourts.gov/forms/bankruptcy-forms (Before you file check with your local bankruptcy district for any local forms or requirements that must be met. There are 94 different bankruptcy districts, and many of them have local forms to file.)
What is Non-Consumer Debt?
This may sound like a catch-22, but any debt not defined by the Bankruptcy Code as debt “incurred by an individual for personal, family, or household reasons” is considered non-consumer debt. Examples would be business debt, investment debt, medical debt related to needed care, taxes, tort claims, and in some cases Student Loans. Most of the times student loans will not be discharged, but in some cases they may help an individual qualify for a Chapter 7 Bankruptcy by avoiding the presumption of abuse for the chapter 7 means test.
Examples of Non-Consumer Debt:
- Business Credit Cards – Unless used additionally for personal expenses
- Business Auto Loans – Unless the auto is used for a personal reasons.
- Business Loans
- Investment Property Loans
- Needed Medical Treatment
- Student Loans for Degrees that are Profit Motivated (Lawyers, Doctors, Nurses, Accountants and Other Professions may be able to use loans for tuition and such as non-consumer debt.)
- This list is not exhaustive. If you have Questions talk to an Attorney for Free
Just Because You Do Not Need To Take The Means Test Does Not Mean A Chapter 7 Is Right For You
6 Reasons Not to File a Chapter 7 Bankruptcy (There are more reasons than 6)
1. You may have too much income and not enough expenses. A bankruptcy trustee may demand that you switch to a chapter 13 bankruptcy to repay your debts.
2. If you own a home with equity, a chapter 7 trustee may try to sell your home out from underneath your family.
3. You have too much un-exempt property and the trustee may want to sell it to repay your creditors.
4. You have transferred property the trustee will be able to reclaim to pay your creditors.
5. You ran up your credit cards or took out cash advances recently or transferred the stuff bought to someone else. (Basically, if it even smells like you did something on purpose to avoid paying back your creditors a trustee may look at like it is fraud and claw back the property.)
6. You repaid your family and friends a large sum of money before paying other creditors.