What is the Chapter 7 Bankruptcy Means Test?

The Steps to a Chapter 7 Bankruptcy Means Test:

1. The Median Test: The first step is a basic comparison of your current monthly income against the Illinois median income level. The median income is calculated by the U.S. Census Bureau and uses the number of dependents in your family as variables. If your monthly income is below the median income in Illinois, then you’ll be eligible for Chapter 7 Bankruptcy without further means testing.
2. Means Test Calculation: Even if your monthly income has been determined to be greater than the Illinois median income, you may still have a chance to be eligible. In this step, your income figure may be reduced by deductions which are set both by national or local standard statistics. Some of these deductions include: Taxes, Health, disability, or term life insurance, Secured debt payments, Court ordered payments, Child care, Health care, Education for employment or disabled child, Charitable contributions, Care of elderly, chronically ill, or disabled. If deductions do not adjust income enough to pass the test, than step 3 must be tried.
3. Multiply non-priority, unsecured debt by 25%: If your disposable monthly income, multiplied by 60, is less than 25% of the debtors unsecured, non-priority debts, then you will pass the means test under this final revised calculation. If you still fail the means test after these qualifications are included, you can only file Chapter 7 Bankruptcy under very special circumstances.

If you don't pass the means test, you are limited to using Chapter 13 Bankruptcy, which requires you to make monthly payments over a 3 to 5 year period according to a budget monitored by the bankruptcy court. Most people who file for bankruptcy would prefer Chapter 7, which requires no repayment and provides liquidation within a few months.