Understanding the means test for Chapter 7 bankruptcy

 Posted on August 12, 2021 in Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows Maryland residents to discharge many eligible debts. However, you must pass the means test, which evaluates your income, assets and obligations, to qualify for Chapter 7.

If you live in Maryland and struggle with mounting debt, learn more about whether you may be eligible for discharge by taking the means test.

What is the means test?

When you file a Chapter 7 bankruptcy petition, the court will determine whether your average income in the past 180 days exceeds Maryland's median income. If your earnings fall under that threshold, you can move forward to request a discharge. In 2021, the median income for a single person in the state is about $5987 a month or $71,839 a year.

Can I qualify with a higher income?

If your income exceeds the state median for your household size, the bankruptcy court will require documentation of your monthly expenses. These must not exceed the amount deemed reasonable for Maryland residents. If your approved expenses reduce your qualifying income based on the state's calculation, you can move forward with Chapter 7 discharge.

If you do not pass the means test, you may still be able to file for Chapter 13 bankruptcy in Maryland. With this process, the court will reorganize your debt and you will make payments for a set time period based on your income after reasonable living expenses. After you complete the payment plan, you may qualify for discharge of the remaining debt.

Many online calculators can help you estimate whether you would likely pass the bankruptcy means test in Maryland. You can also discuss your situation with a bankruptcy attorney.