What type of personal bankruptcy case to pursue can be almost as important a decision as the decision to actually file for bankruptcy in Michigan. The two most common options you have to choose from are Chapter 7 and Chapter 13.

Many of those looking to file for bankruptcy come to us here at Phoenix Law wanting to file under Chapter 7. There may be good reason for this; a Chapter 7 bankruptcy allows for the discharge of certain types of debt. Yet it may come as a surprise to you to learn that you need to qualify to file under this chapter.

The means test

In order to qualify for a Chapter 7 bankruptcy, you need to meet the criteria established by the Chapter 7 means test. This is a financial evaluation to determine whether or not you may have the means to repay your debts (in which case, the court assumes you looking to discharge your debts as an abuse of the privilege afforded by Chapter 7). The first step in the means test is to compare your aggregate monthly income to the median for your particular demographic in your state. If it is below it, you qualify to file under Chapter 7. If it is not, you move on to the next step.

Can you fail the means test?

According to the website for the Federal Judiciary, the next step in the means test projects your monthly income out over five years. If it is greater than either $12,850 or 25% of your non-priority unsecured debt, then you cannot file under this chapter.

All is not lost, however, Failing the means test simply means that the court will likely convert your case to a Chapter 13 bankruptcy. You can discover more information on personal bankruptcy basics throughout our site.