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What is the Chapter 7 “means test”?

Financial calamity can fall on just about anyone. All it takes is a single medical bill, car repair or layoff that makes it difficult for you to make ends meet financially. If these hardships go on long enough and you do not have the financial resources to pay back what you owe, you may want to consider Chapter 7 bankruptcy.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy, also referred to as “liquidation bankruptcy,” provides a means for you to legally address your debts. In a Chapter 7 bankruptcy filing, your nonexempt assets will be sold by a bankruptcy trustee. The proceeds from this sale will be used to pay off your creditors based on their priority status. After the proceeds are exhausted, many (but not necessarily all) of your remaining debts will be extinguished, allowing you to move forward with a clean financial slate.

The Chapter 7 means test

To qualify for Chapter 7 bankruptcy, you must satisfy the Chapter 7 means test. The means test will evaluate how much you earn in income, what your expenses are and how big your family is to determine if you have sufficient disposable income to pay back your debts. If you do not pass the Chapter 7 means test, you still may be able to file for Chapter 13 bankruptcy.

Understanding your bankruptcy options

The Chapter 7 means test can be confusing, especially if you have never filed for bankruptcy before. For this reason, many people who want to file for bankruptcy will consult a professional so they can better understand their bankruptcy options, including filing for Chapter 7 or Chapter 13 bankruptcy.

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