Chapter 7 bankruptcy and the means test

A lot of Virginians find themselves financially struggling at one point or another. While many of these individuals are able to climb out of debt or easily manage it, others find themselves completely overwhelmed. While many people in the latter category make an ambitious attempt to claw their way back to financial stability, this isn't always possible. These individuals may want to consider their debt relief options rather than wasting time and money on an effort that likely won't resolve favorably.

One of those debt relief options is Chapter 7 bankruptcy. Also known as liquidation bankruptcy, this process allows an individual to eliminate debt by selling off assets to repay creditors. Not everyone qualifies for this type of bankruptcy, though. In fact, before an individual can proceed with a Chapter 7 filing, he or she must pass what is referred to as a "means test."

Looking at the big picture, the means test encompasses two steps. The first step involves analyzing a petitioner's income in the six months leading up to a bankruptcy filing. If his or her income is less than the state's median family income, then a Chapter 7 bankruptcy can proceed. If one's income is higher than the median income, then the second step must be taken. Here, all of a debtor's expenses are subtracted from his or her income to determine if he or she is able to repay any portion of unsecured debt. If he or she is able to do so, then Chapter 7 is unavailable to him or her.

Those who fail the Chapter 7 means test may still find debt relief through Chapter 13 bankruptcy. However, by working closely with a legal professional, indebted Virginians can better assess their options and confidently pursue a debt relief route that best addresses their circumstances. Hopefully, then, these individuals can secure the fresh financial start that they deserve.

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