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How the Means Test Affects Your Eligibility for Bankruptcy

If you are deep in debts with little or no prospect of repaying them, you may want to consider filing for Chapter 7 bankruptcy. This form of legal relief can wipe out most of your debts and allow you to get a fresh start in your financial affairs. However, Chapter 7 is an available remedy only if you can demonstrate that your income is so low that you can’t pay off even a portion of your outstanding debt. This requires passing what is known as the means test. 

The first step in completing the means test is to calculate your average household monthly income for the prior six months and then to compare it to the median income in Georgia for a same sized household. If your income is at or below the median, you qualify for filing Chapter 7. 

If your household income is greater than the state median, you still may be able to pass the means test. You must calculate all of your household expenses, such as:

  • Credit card and lines of credit payments

  • Auto loan payments

  • Expenses for childcare

  • Tuition for dependent children

  • Health, life, auto and homeowner’s insurance policies’ payments

  • Mortgage payments

  • Medical and dental expenses

  • Spousal and/or child support payments

  • Federal, state and local tax payments

Other recurring expenses may also be included. The expenses are then subtracted from your household income to derive your disposable income — that is, the amount that could be devoted to debt repayment. If your disposable income is low enough, you may then qualify for Chapter 7 protection. 

If your disposable income is too high for Chapter 7 bankruptcy, don’t despair. You may be able to pursue Chapter 13 bankruptcy, which can also allow you to protect your property while discharging debt. In Chapter 13, you agree to a court-approved plan by which you repay a portion of your debt over a three- to five-year period. Upon completion of the plan, your remaining unsecured debts are discharged. Secured debts like your home mortgage remain in force, but a Chapter 13 can allow you to make up any arrears in payments that could threaten you with foreclosure.

At Rountree Leitman & Klein LLC in Atlanta, we assist debtors in completing the means test and advise them of alternatives if Chapter 7 is unavailable. During the COVID-19 pandemic, we are accessible via telephone, video conferencing, email and in-person meetings by appointment. Call us at 404-737-9623 or contact us online for a consultation. 

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