In order to file a petition for Chapter 7 bankruptcy, you must pass three tests. Those tests are the Means Test, the Totality of the Circumstances Test, and the Good Faith Test. If for any reason you do not pass all three of these tests you will not be eligible to file a Chapter 7 bankruptcy. Instead, you should file Chapter 13. If you do not pass the three tests, but still attempt to file Chapter 7, there is a high probability that your bankruptcy petition will be dismissed.
The Means Test
If your income is below the median income in your state for the size of your household, it is not necessary to take the Means Test. You can check this chart from the Department of Justice to determine where your income lands. Keep in mind that even if you are the only person petitioning for Chapter 7 bankruptcy, you must also include income from all sources in the home. Typically, the income from all sources in the last six months is added together and then the total figure is divided by six to determine your monthly income.
If your median income for your family is above the median income for your household size, then you will proceed to take the Means Test to determine if you are financially eligible for Chapter 7. This is where calculations get more complicated. The Means Test basically helps you determine your disposable income, which is your income minus all allowed expenses.
To qualify for Chapter 7, your disposable income should end up being negative. If your disposable income is positive, there is a presumption that you have enough money left over at the end of the month to pay off your debt. In this case, you should probably file for Chapter 13 bankruptcy. If you experience difficulty calculating the Means Test or you are on the borderline of qualifying for Chapter 7, a bankruptcy attorney might be able to help you find exemptions and expenses that you overlooked.
The Totality of Circumstances Test
Once you pass the Means Test, you move onto the Totality of Circumstances Test. While the Means Test is based on a formula, the Totality of Circumstances Test takes your entire financial situation into consideration to determine whether or not you are able to pay your debts. This time, the attention is focused on your expenses.
Bankruptcy Code specifies that anyone who files bankruptcy should only have expenses that are considered necessary and reasonable in order to file for Chapter 7. This means that you should not be spending your paychecks on going out to dinner every week or purchasing luxury items. If you are filing a bankruptcy petition, your income should be used to pay your bills and creditors.
The Good Faith Test
The third and final test, the Good Faith Test, is aimed at determining if you have the right intentions for your bankruptcy petition. If you are spending your income appropriately and your Means Test came out negative with a large amount of debt, these are usually good ways to prove you have the right intentions. Obviously, the basic question that the Good Faith Test will answer is: Are you filing the bankruptcy in good faith?
You should never attempt to conceal assets or income in order to file bankruptcy. Sooner or later, the omission will be found and your bankruptcy will be deemed filed in bad faith. The end result is a dismissal of your bankruptcy, which means you do not get any relief from your debts at all.Are You Considering Filing For Bankruptcy? If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.
Are You Considering Filing For Bankruptcy?
If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.