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To be eligible for a Chapter 7 bankruptcy, a debtor’s household income must be insufficient
to pay his or her debts. In order to determine whether a debtor can afford to pay
any of his or her debts, Chapter 7 Bankruptcy law compares the debtor’s annual income
to the annual median income based on family size of the state where the debtor lives.
Provided that the debtor’s income is lower than his or her state’s median annual
income for the same family size, and provided that the debtor’s actual monthly living
expenses leave no disposable income with which to pay toward unsecured debts such
as credit cards, medical bills, and judgments, then the debtor will generally qualify
for a Chapter 7 bankruptcy discharge. Current state annual median income by family
size information is regularly published by the U.S. Census Bureau.

f the debtor’s annual income is greater than his or her state’s median income for
the same size family, then the debtor must pass a “means test” in order to qualify
for a Chapter 7 bankruptcy discharge. The means test portion of a Chapter 7 Bankruptcy
petition is contained in official form B22A. The means test takes into account the
current monthly income of the debtor together with the state median income for the
debtor’s state. The means test also compares the debtor’s income with IRS published
“standards” for allowable living expenses on both a national and a local basis. The
local living expense standards take into account such items as metropolitan housing
costs and transportation expenses. The means test is aimed at determining whether,
based on the debtor’s income and the IRS determined “allowable living expenses”,
the debtor can afford to pay his or her unsecured debts. If the debtor has no more
than $100 of “disposable income” after allowed expenses, then he or she will pass
the means test and the debtor can still qualify for filing a Chapter 7 bankruptcy
even if his or her annual income is above the median income of similar family sizes
for his or her state. If the debtor’s monthly disposable income falls above the $166
monthly mark, the debtor cannot qualify for a Chapter 7 bankruptcy. If on the other
hand, the debtor’s monthly disposable income falls between $100 and $166 per month,
then his or her eligibility for filing Chapter 7 is then determined by whether the
debtor could pay at least 25% of his or her unsecured debt (at $166 per month over
five years or $6,000 in the aggregate) in five years. It is important to note that
if the debtor’s debts are primarily “non-