Unlike Chapter 13 bankruptcy, which is available to everyone, you must be eligible to file under Chapter 7 of the U.S. Bankruptcy Code. Since this process eliminates most, if not all, of your debt in a very short period of time, certain measures have been taken to limit the amount of people that qualify. In fact, this form of bankruptcy has been strictly reserved for those who truly cannot repay their debts. While this does not mean that you must be penniless, you will be required to take and pass a means test before filing under Chapter 7. This test is used to evaluate your "disposable income" and determine whether or not you have the means to repay your debts without bankruptcy.
So how does this work? The first step is simple: you must determine whether or not your current monthly income is less than the median income for a household of your size in the state where you reside. In the state of Illinois, this number will vary—depending on the number of people in your household. Generally speaking, however, the median income level is as follows:
- Single-Earner – $47,485.00
- Two-Person – $59,861.00
- Three-Person – $68,721.00
- Four-Person – $80,776.00
If your current monthly income is less than the median income in your state, you will not need to complete the rest of the means test. You would qualify on this fact alone. If your currently monthly income is greater than the state's median income, however, you will be required to go a step further. Since this process was designed to weed out those who have the means to repay at least a portion of their unsecured debts, you will need to determine how much disposable income you have left over each month. This can be done by taking your total monthly income and deducting the cost of your necessary monthly expenses. The amount that is left over is called "disposable income."
If the amount of your disposable income exceeds a certain amount, you would be barred from filing under Chapter 7. It is important to understand that even those who earn significant monthly incomes can pass the means test, however, as it ultimately depends on the amount and type of expenses you are expected to pay each month. For this reason, you should not hesitate to discuss your case with a Chicago bankruptcy lawyer at the Law Office of Joseph P. Doyle if you are interested in filing. Our firm can evaluate the specifics of your case and give you a straight-forward answer about your financial options. Just call today at (312) 957-8077 for a free initial consultation.