The new bankruptcy laws passed in 2005 changed the eligibility requirements for Chapter 7 bankruptcy. Those wishing to file under Chapter 7 must now take a bankruptcy means test to determine if they are eligible.
The bankruptcy means test is a formula that considers an individual’s financial position, and determines eligibility for Chapter 7 bankruptcy. Eligibility for Chapter 7 is based on income and expenses. The means test considers an individual’s current monthly income against disposable income. If disposable income is too high, the debtor may not be able to file a Chapter 7 bankruptcy claim. An individual with a solid income but high expenses may still qualify for a Chapter 7. Moreover, if an individual’s income is too high, even after taking into account allowable expenses, he or she may still be eligible to file for Chapter 13 bankruptcy.
The means test was developed to limit the number of people filing for Chapter 7 bankruptcy. Many people struggling with debt earn a solid income and may not have to have all their debts liquidated through bankruptcy. While Chapter 7 totally eliminates debt, Chapter 13 reorganizes and eliminates a portion of debt.