If your debt has become too overwhelming for you to handle, you should consider filing for Chapter 7 bankruptcy. There are several advantages to filing for Chapter 7 bankruptcy, including:
- The discharge of many unsecured debts (e.g., credit card debt or personal loans).
- Protection of your home/car through exemptions.
- A fresh financial start.
However, not everyone in debt will qualify for Chapter 7 bankruptcy. Wisconsin residents can determine whether they qualify through the Chapter 7 means test.
“Means test” for Chapter 7 bankruptcy
The Chapter 7 “means test” is a two-step process. However, if you qualify in step one, you do not need to continue on to step two.
Step 1: Current monthly income
The first step of the Chapter 7 “means test” is determining your current monthly income, or the gross income earned in the six months prior to filing multiplied by two. If your current monthly income is less than the median for a family in your state with the same number of members as yours, you will pass the “means test” and qualify for Chapter 7 bankruptcy. For example, a 4 member household in Washington has a median monthly income of $10,136.
Step 2: Monthly disposable income
If your current monthly income is higher than the median, you will have to proceed to the next step of the test, which is calculating your monthly disposable income. If you deduct your allowable expenses (e.g., food or medical bills) and your disposable income is low enough, you can file for Chapter 7 bankruptcy. However, if you have enough disposable income to pay part of your unsecured debt, you may not qualify for Chapter 7 bankruptcy and will have to consider other alternatives.
Exemptions
Most people must past the means test to qualify for Chapter 7 bankruptcy, but there are a few exceptions, including disabled veterans seeking to eliminate debt accumulated while on active duty.