By Peter Bricks, an Atlanta bankruptcy lawyer
Occasionally I will get a call from a perspective debtor who tells me he wants to file Chapter 13 because he “can’t” file Chapter 7. And while there are certainly valid reasons why this might be true, there are also times when the debtor is misinformed and fallen for a bankruptcy myth. One of the principle incorrect reasons cited is the debtor can’t file Chapter 7 because he is over median income.
While it’s true that one of the factors that determines whether a Debtor will get a Chapter 7 discharge is the debtor’s income status, that is not the sole factor in determining qualification. The means test was included as part of the 2005 law known as “BAPCPA,” as a test to determine which debtors deserve a Chapter 7 discharge.
While there are exceptions to even having to take the means test by virtue of being a majority non consumer debtor, for this blog’s purpose, let’s assume you complete the means test as part of your bankruptcy filing. The means test is essentially a two pronged test. If the debtor qualifies under either prong, there is a presumption that the debtor should receive a Chapter 7 discharge.
The first part is simple. The debtor’s last six months of income prior to the case filing (including outside sources of income like spouse income or contribution from family members) is compared against the median household size average in the debtor’s state. If the debtor is below median, then the debtor is good to go and does not need to complete the second part of the test.
If however the debtor is over median income, that alone does not mean the debtor cannot qualify for a Chapter 7 discharge. The debtor merely moves onto the second part of the test, which deducts for things like living expenses, charitable contributions, health insurance, mortgage and car payments and more.
If after those expenses are deducted, the debtor does not have disposable income for the unsecured creditors, then the debtor passes the test on paper. If there is, however, more than a few hundred dollars of monthly income still remaining, then a presumption is created that the debtor should not get a Chapter 7 discharge. Note however that this is merely a presumption, and can still be rebutted.
Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA), and contributes regularly to BankruptcyBlog.org. He has Georgia bankruptcy attorney offices in Cumming, Jonesboro, Dunwoody, Atlanta, and Woodstock.