## What is the Chapter 7 Means Test?

Before filing Chapter 7 bankruptcy, you must first qualify under the

The Chapter 7 Means Test is a simple tool that helps assess your debts, income and assets to ensure that filing Chapter 7 bankruptcy is only used by people who truly need it.

**Chapter 7 Means Test**- A test that is used to determine if you are eligible for this form of bankruptcy.The Chapter 7 Means Test is a simple tool that helps assess your debts, income and assets to ensure that filing Chapter 7 bankruptcy is only used by people who truly need it.

## Means Test + Median Income Requirements

A major component of the Chapter 7 Means Test is the ability to compare your income to the median income level in Michigan.

If your income is
the median income in Michigan...less than> then you likely qualify to file Chapter 7 bankruptcy. |
If your income is
the median income in Michigan...more than> you may still qualify for Chapter 7, but the means test will require you to compare your expenses and disposable income against the bankruptcy court’s allowable expenses. |

## Steps of the Chapter 7 Means Test

**STEP 1 >**YOUR MONTHLY INCOME

The first part of the Chapter 7 Means Test compares

**your**monthly income to the median income for Michigan based on the size of your household.

**If your monthly income is at or below the median income level, the means test is over.**

*> In this situation, there is typically no presumption of abuse and you are eligible to file a Chapter 7 bankruptcy petition.*

**How Does the Court Determine My Income?**

To calculate your applicable annual income, the court looks at the previous six months and multiplies that amount by two (x2).

*> Those who have recently seen a reduction of income or job loss may consider waiting a few months to file, as this could significantly lower their annual income under the means test.*

**STEP 2 >**DEDUCT ALLOWABLE EXPENSES

Even if your income is greater than the state median, you may still be able to file under Chapter 7 if you qualify under the second part of the test -

**calculating your disposable income**.

*> This second step deducts certain allowable expenses, such as housing costs and utilities, from your monthly income based on IRS standards.*

The remaining amount left over after these allowable expenses is your "disposable" monthly income. This number is then multiplied by 60 to determine how much disposable monthly income you’re projected to have over the next five years.

If the five-year total is
$6,000...less than > then you have passed the means test and you may file bankruptcy under Chapter 7. |
If the five year total is
$10,000...more than> then there is a presumption of abuse, and you will likely need to file a Chapter 13 repayment plan, though you will be given the chance to include additional necessary expenses to reduce your monthly income. |

**STEP 3 >**QUALIFYING

For this step, you will take your projected disposable income over the next five years - that number you calculated that falls between $6,000 and $10,000 - and compare it to the total amount of your

**non-priority**unsecured debts.

*If your disposable income is less than 25% of the total of those debts, then there is no presumption of abuse, and you therefore qualify to file under Chapter 7.*

*> Just as before, you will have the opportunity to show special circumstances that justify the inclusion of additional expenses.*

**SUMMARY >**THE BANKRUPTCY MEANS TEST

When everything is said and done, the Chapter 7 Means Test works like this:

1 |

**Compare your monthly income to the median income in Michigan:**
If your income is
at or below the state median... > the presumption for abuse does not arise and you “pass” the means test. |
If your income is
the state median...more than> you'll need to calculate your disposable income for the next five years. |

2 |

**Calculate your disposable income over the upcoming five years:**
A |
B | C | |
If that number is below $6000, the presumption for abuse does not arise and you “pass” the means test.If that number is above $10,000, the presumption for abuse does arise, and you can file under Chapter 7 .only with a showing of special circumstancesIf that number is between $6000 and $10,000, calculate 25% of your outstanding unsecured, non-priority debts. |

3 |

**Multiply your outstanding unsecured, non-priority debts by .25:**
If your disposable income over the next five years (as calculated in step 2) is
25% of your unsecured, non-priority debts...less than> you “pass” the means test and can file under Chapter 7; |
If your disposable income over the next five years (as calculated in step 2) is
25% of your unsecured, non-priority debts...greater than> the presumption for abuse arises and you can file under Chapter 7 only with a showing of special circumstances. |

"Regardless of whether you passed the Chapter 7 Means Test, you should know that your bankruptcy trustee can still throw your case out for abuse if he or she deems that your particular case warrants it. |