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Understanding the Chapter 7 bankruptcy means test

When seeking Chapter 7 bankruptcy protection, people in Washington, D.C., and elsewhere must meet certain eligibility requirements. One of these qualifications is the means test. In order to ensure they are choosing the right debt relief option for their situations, it behooves people to understand what the means test is and when it is applicable.

People must provide information about their monthly income and expenses when filing for Chapter 7 bankruptcy. According to the U.S. Department of Justice, they will be required to input this information onto the appropriate version of Bankruptcy Form 122. In addition to detailing their gross monthly income, people must also provide specifics relating to their allowed monthly expenditures. They may be required to include details regarding the following: wages, interest, commissions, dividends, royalties, rental and real property income, pension, retirement income, workers’ compensation benefits and state disability insurance.

In situations when people’s average monthly incomes exceed the state median for a family of their size, they may be subject to the means test. The U.S. Trustee Program reports that the median annual income for a one earner household in the District of Columbia is $50,133. For a family of between two and four people, the median income is $91,303.

The means test was developed to ensure that only those who truly cannot pay their debts are eligible for Chapter 7 bankruptcy protection. To this end, calculations are utilized to determine whether people would have enough left over to repay some of their debts after deducting certain expenses. The calculations utilize the information people provide on their bankruptcy forms. The Department of Justice points out that other information required for the means test forms may be obtained from the Internal Revenue Service and the Census Bureau.

Determining eligibility for Chapter 7 bankruptcy protection may be challenging in some cases. Therefore, it may be helpful for people who are seeking debt relief to consult with an attorney to discuss their options.

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