The vast majority of Georgians only consider bankruptcy as an absolute last resort to resolve financial trouble. Unfortunately, however, there are people in our state and throughout the country who would use and abuse this important and powerful tool for financial gain. That is why there are now financial tests in place that an individual petitioner must meet before qualifying for Chapter 7 bankruptcy. This means test is designed to ensure those seeking bankruptcy relief are actually unable to manage their debt in light of their assets, income and living expenses.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that, among other things, instituted a means test for all individual Chapter 7 applicants. This is how it works:
- First, the court looks at your current monthly income to determine if it is more or less than the median monthly income in your state for a family of the same size. For example, in Georgia in 2011, the state median monthly income for a family of four was $5,616.75. If a petitioner’s income is lower, that person qualifies. If not, step two becomes necessary.
- At step two, the court considers your average monthly disposable income over the last five years. This means your gross income minus allowable living expenses. If it is higher than either $10,950 or 25 percent of your unsecured debt, you may not qualify for Chapter 7.
If you do not qualify under the means test, you still have options. In many cases, petitioners who fail the means test can convert their Chapter 7 cases to Chapter 13 cases. This allows them to obtain relief through a repayment plan rather than a general discharge. A Georgia bankruptcy lawyer can help you determine the types of bankruptcy relief for which you may qualify.