In its simplest form, there are two distinct criteria which determine your eligibility to file for bankruptcy – assets and income.
With respect to assets, an individual is allowed to protect certain basic assets from their creditors. This is called exempt property, or exemptions. So long as the value of your assets do not exceed the statutory limitations, you have met this criteria.
With respect to income, under the Bankruptcy law, most individuals or couples filing for protection must now meet certain eligibility requirements under a “Means Test.”
Under the Means Test, you must first determine if your average monthly income, from all sources, for the six month period prior to filing is below the median income for your state, based upon the size of your household. If your average monthly income for the six month period prior to filing is below the median income for your state, you have passed the first hurdle, and so long as you meet the other eligibility requirements, you can file for protection under Chapter 7 bankruptcy.
If your average monthly income for the past six months is above the median income for your state, you must proceed to the second hurdle – do you have the ability to repay a portion of your debt?
The second hurdle is the determination of your ability to repay a portion of your debt. Under the Means Test, you are required to complete an analysis of your income and expenses (based upon the Internal Revenue Service guidelines for your state as well as certain actual monthly expenses that your may incur – such as mortgage or automobile loan payments). If, after completing the Means Test analysis, it is determined that your net disposable income is less than $125.00 per month, you have passed the second hurdle and you can proceed with your Chapter 7 filing so long as you meet the other requirements.
If you can afford to repay at least $187.50 per month, or $11,250.00 over a five year period), you are NOT eligible to file a petition for protection under Chapter 7 and, you shall be required to file a petition under Chapter 13, in which you shall be required to repay a portion of your debt over a period of up to five years.
Please note that although there are now a number of websites that may permit you to perform your own Means Test, we recommend that you should seek assistance from an experienced professional before proceeding with your filing.