Chapter 7 Means Test Alabama
Maybe you’ve finally accepted your fate: you need to file bankruptcy in order to get your debt under control. The only problem is that you don’t know the first thing about Chapter 7 bankruptcy qualifications or how to file a petition. Through a few Google searches, you probably discovered that you have to pass something called the Chapter 7 means test Alabama before you begin your bankruptcy case. Fortunately for you, the legal team at Eric Wilson Law LLC will walk you through the whole process.
Eric Wilson is an experienced bankruptcy attorney who is passionate about helping people in the Tuscaloosa, AL area get a fresh start on their finances. He can help you too. For more information on the Chapter 7 means test Alabama, call 205-349-1280.
What is the Chapter 7 Means Test Alabama?
In order to file for Chapter 7 bankruptcy, all debtors have to take the means test first. The Chapter 7 bankruptcy means test determines whether or not you make too much money to file for consumer bankruptcy. But if your household income falls below your state’s median income, you automatically qualify to file for Chapter 7 bankruptcy.
It’s important to note that the means test is specifically for people with consumer debt, not business debt. If you’re a business owner filing for business bankruptcy, you don’t have to take the means test.
What is Alabama’s Median Income?
According to 2021 data from the Department of Justice, the median income for 1 person in Alabama is $49,191. For a family of four in Alabama, the median income is $80,845. These numbers change annually, so be sure to check with your bankruptcy trustee and attorney for the accurate average income in your state. If you’re an Alabama resident and your current monthly income exceeds the aforementioned numbers, you may not qualify for Chapter 7 bankruptcy.
What Is Considered Low Income in Alabama?
More than 800,000 Alabama residents – including 262,000 dependent children – live below the federal poverty threshold according to 2019 data from Alabama Possible. The federal poverty threshold is approximately $12,880 for just one person and $26,500 for a family size of 4.
How the Chapter 7 Means Test Works
The Chapter 7 bankruptcy means test basically determines whether you have enough money to pay off your debt on your own. Below, we explain how the test works.
Step 1: Calculate Your Current Monthly Income
The first step in the Chapter 7 means test is calculating your current monthly income. The best way to do an accurate means test calculation is to add up your gross income over the last 6 months and double it. Your average monthly income isn’t just paychecks from your job. Listed below are other sources of income that you have to include in your means test calculation.
- Tips, bonuses, commission, overtime, etc.
- Any taxable income from a farm or other business
- Passive income from rental properties
- Retirement income or pension
- Monthly alimony or child support payments
- Income from an unemployment program
- Insurance from worker’s compensation
- Insurance from state disability
- Annuity payments
- Royalties, interest, or dividends
The only income you have to exclude are Social Security Act payments, victims of war crimes payments, and victims of domestic terrorism payments.
As stated previously, you’ll automatically pass the means test if your average monthly income falls below your state’s median income. Even if you make more than the median income, you could still file for Chapter 7 bankruptcy.
Step 2: Determining Disposable Income
Let’s say that you technically make too much money to file for Chapter 7. The next step, before you’re completely disqualified, is to calculate your disposable income. In order to do this, you must subtract your allowable monthly expenses from your current monthly income. If you have enough disposable income remaining to pay off your debt on your own, you’re officially disqualified from a Chapter 7 bankruptcy filing.
What Documents Do I Need to Fill Out for the Chapter 7 Means Test?
You must fill out several Chapter 7 bankruptcy means test forms with your local bankruptcy court to get your case started. But these forms can get confusing, especially if you’re new to the world of bankruptcy. No worries, we’ll walk you through each means test form.
- Form 122A-1: This is the first form you need to fill out for the means test. Basically, it determines whether your household income exceeds Alabama’s median income. If it doesn’t, you don’t need to fill out the other forms listed below.
- Form 122A-2: You only need to fill out this form if your means test income exceeds Alabama’s median income. This form basically calculates your disposable income by subtracting your allowable expenses from your gross wages.
- Form 122A-1Supp: Some people can qualify for Chapter 7 without taking the means test, such as active military members and veterans. If that’s you, you’ll have to fill out this form to make sure that you’re exempt from the means test.
Once you pass the Chapter 7 bankruptcy means test, an experienced bankruptcy attorney at Eric Wilson Law LLC will walk you through the rest of your bankruptcy proceeding. If all goes well, you’ll be debt-free in only 6 months.
Chapter 7 Bankruptcy Qualifications in Alabama
The Chapter 7 bankruptcy means test isn’t the only qualification for this chapter of bankruptcy. There are other requirements to file too, including the ones listed below.
- If you’ve already filed for Chapter 7 in the last 8 years, you can’t file again
- If you’ve already filed for Chapter 13 in the last 6 years, you can’t file again.
- You can’t file for Chapter 7 or Chapter 13 if the bankruptcy court recently denied your petition. In 181 days, you can try to file again.
- You can’t file for any chapter of bankruptcy if you haven’t completed a debt counseling course first.
- If it’s been proven that you’re trying to defraud your creditors, you can’t file for any chapter of bankruptcy.
What Happens if I Don’t Pass The Chapter 7 Means Test?
If you don’t qualify for Chapter 7, you can file bankruptcy under Chapter 13 instead. Under this chapter of bankruptcy, you would follow a repayment plan for 3 to 5 years until you achieve debt relief. So instead of selling certain assets to pay off your debt in Chapter 7, you would just have to make monthly payments.
Eric Wilson Law LLC is a debt relief agency. Even if you fail the means test, our law firm will make sure that you can still get a fresh start on your finances, even if that’s through Chapter 13 bankruptcy.
Debts that Chapter 7 Can Discharge
If you meet all the Chapter 7 qualifications, you can have all the following types of debt discharged within 6 months.
- Medical bills
- Credit card debt
- Personal loans
- Utility bills
- Past due rent
- Car accident claims
- Social security overpayments
- All unsecured debts
- All secured debts, as long as you stay current on the payments
Debts That Chapter 7 Can’t Discharge
Chapter 7 bankruptcy can discharge almost all debts except for the ones listed below.
- Child support
- Student loans
- Tax debts
- Certain debts that the bankruptcy court declared as “non-dischargeable,” such as those created by malicious or fraudulent behavior
Call Chapter 7 Bankruptcy Lawyer Eric Wilson Today
Eric Wilson is an experienced bankruptcy attorney who helps clients in the Tuscaloosa, AL area achieve a life of financial freedom and security. He can help you achieve bankruptcy relief too, no matter how hopeless your financial situation may be. Call 205-349-1280 to get started on your attorney-client relationship today.