Not everyone qualifies for a Chapter 7 bankruptcy filing. To be eligible, people must first pass the means test. They compare their income to the current federal median income for their state and household size.
The means testing process determines who is eligible for Chapter 7 bankruptcy, and who may only have the option of filing a Chapter 13 case. People sometimes assume they do not qualify for Chapter 7 bankruptcy despite having experienced financial hardship recently. They may inaccurately calculate their income. Understanding the income standards for the means testing process can help people better estimate their eligibility.
Filers work with the last six months of wages
Technically, the means testing process involves comparing annual income to the median for a house of the same size. However, filers do not need to wait a year after a job loss or wage reduction to validate their eligibility for a Chapter 7 filing. Technically, they calculate their annual income based on the last six months of wages. A professional who lost their job could qualify based on the reduced monthly payments they receive through unemployment benefits.
There are also adjustments that filers can make that can reduce their income and push them below the current median income for their household size. Small mistakes when calculating income or making permitted adjustments can prevent people from qualifying for Chapter 7 proceedings.
Working with an attorney during the means testing process can help people avoid mistakes and assumptions that deny them financial relief. People who understand how to calculate their wages for the means testing process are in the best position to explore different forms of bankruptcy relief.