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What is a ‘means test’ in Tennessee Chapter 7 bankruptcy?

On Behalf of | Mar 17, 2017 | Chapter 7

Filing for bankruptcy can help Tennessee residents get a fresh start on their financial lives. Whether they became saddled with debt they can’t pay through loss of a job or unexpected expenses, such as sudden illness, a Chapter 7 liquidation may be able to get them out of dire economic straits. However, not everyone has a right to debt discharge through bankruptcy, and recent federal laws have attempted to deal with what some people claim is an ‘abuse’ of the process.

One way that the law attempts to deal with this is the ‘means test’ for Chapter 7. This is a test whereby a bankruptcy court — usually through the trustee — will decide whether the filing party’s income is below the amount that will make him or her eligible for this type of bankruptcy. The first thing that will be looked at is the filer’s monthly household income. If it is below the state’s median income for his or her household size, the filer will be presumptively eligible for liquidation. In Tennessee that median income amount is just under $40,000 per year for one person and just under $50,000 for two.

If the filer’s income is over the median amount, all is not lost, however. Next, the trustee will look at information provided about certain allowable expenses which may include amounts to sustain minimum livability, as well as payments the filer is legally obligated to make, and subtract those amounts from the gross household income. If this amount is less than $7,025 per month, the filer will be eligible to continue the process. If it is more than $12,475 or between $7,025 and $12,475 and more than 25 percent of the debtor’s unsecured debt amount, the debtor will be presumed ineligible.

This is, of course, only a beginning step in the road toward bankruptcy discharge. There are many pitfalls and reasons why alternative methods of debt relief may be better in certain circumstances. Tennessee residents with questions may wish to consider contacting an experienced bankruptcy lawyer.