Ask The Money Coach

In the wake of bankruptcy reform legislation passed in 2005, to qualify for a Chapter 7 filing, you must now show that you can’t repay your creditors, and you must pass an “income test” and a “means test.”

The rules governing each are complicated. But in its simplest form, the “income test” compares your income to the median income in your state, based on the number of people in your household. If your income exceeds your state median income, the bankruptcy trustee or any creditor can bring a motion to dismiss your bankruptcy filing on the grounds that is an “abuse” of the bankruptcy system.

The “means test” in a Chapter 7 filing examines whether or not you can afford to pay at least $100 a month to your creditors over the course of five years (a total of $6,000).

If you are deemed capable of repaying this amount, you will be shifted from Chapter 7 into Chapter 13 bankruptcy for a five-year repayment plan.

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