Bankruptcy Means Testing
Understanding Chapter 7 Qualification in Michigan | Krupp Law Offices P.C.
Do You Qualify for Chapter 7?
The Bankruptcy Reform Act introduced "Means Testing" to determine if an individual qualifies for a Chapter 7 debt discharge or if they must file a Chapter 13 repayment plan. While it sounds intimidating, the means test affects very few people in practice. At Krupp Law Offices P.C., we provide a comprehensive analysis to help you navigate these requirements.
Prong One: Median Income
If your gross household income is below the Michigan median for your family size, you automatically qualify for Chapter 7. The analysis stops here.
Prong Two: Disposable Income
If you are above the median, we apply deductions for necessary expenses (housing, food, clothing). If your "disposable income" is low enough after these deductions, you still qualify.
What Counts as Income?
It is important to realize that not all money coming in is considered "income" under the means test. For example, Social Security benefits are generally excluded from the calculation. Furthermore, the household size is based on "heads on beds," which can include elderly parents or adult children you are supporting.
If You Don't Pass the Means Test
If your income is too high for Chapter 7, you still qualify for Chapter 13 relief. In this scenario, you pay back creditors based on your ability to pay, not the total amount you owe. This often results in paying back only a small fraction of your total debt over a 3-to-5-year period.
Get a Professional Analysis
Means testing levels change twice a year and the application of the law evolves daily. For a specific calculation based on your current circumstances, call 616-459-6636 for a free consultation.
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