What Is the Chapter 7 Means Test in Illinois?
For residents of Illinois who are struggling to repay their debts, filing bankruptcy may be the only alternative. Chapter 7 bankruptcy allows debtors to eliminate their liability for certain types of debt. Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), debtors must successfully pass a means test for income to be eligible for Chapter 7. Debtors in Illinois should be aware of the current income guidelines prior to filing their Chapter 7 petitions.
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Function
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The primary function of the means test is to prevent consumers from abusing the bankruptcy code. The means test is meant to separate those debtors who are truly unable to repay what they owe from those individuals who are simply seeking to avoid responsibility for their debts.
Determining Eligibility
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In order to determine your eligibility to file Chapter 7, you must pass the means test. The means test compares your median income for the previous six months against state median income limits. If your median income is less than the median income limit for your family size, you automatically qualify for Chapter 7. If your median income is greater than the allowed limit, you will then need to calculate your monthly disposable income. This is done by deducting allowed monthly expenses as established by the IRS from your monthly income. Typically, if your monthly disposable income is less than $100 or if the amount of your monthly disposable income would repay less than 25 percent of your outstanding debt over a five-year period, you pass the means test. If your monthly disposable income over the same five-year period would exceed $10,000, then you are considered ineligible for Chapter 7.
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Median Income Guidelines
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Median income guidelines are established based on information gathered by the U.S. Census Bureau. The U.S. Trustee program maintains a table of median incomes by state that is updated regularly. As of March 2011, the current median income limit for a single debtor in Illinois was $45,607. The limit for joint debtors was $59,104. A family of three could earn a median income of $68,782 while a family of four could earn up to $79,788. The median income limit increases by $7,500 for each additional family member for households larger than four.
Considerations
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Each county maintains different amounts for what you may deduct for regular expenses, such as housing, transportation and basic necessities. It's important to use only the allowed amounts for the area in which your primary residence is located to ensure that you get the most accurate calculation of your monthly disposable income. If you don't pass the means test, your next option is to consider filing Chapter 13 bankruptcy instead. In a Chapter 13 bankruptcy, you agree to repay some or all of what you owe to your creditors over a three- or five-year period, depending on your income. Chapter 13 typically remains on your credit for a shorter period of time than Chapter 7, and you don't have to give up any of your property or other assets. If you're facing a creditor lawsuit, Chapter 13 can help you to avoid incurring a court judgment, wage garnishment or asset seizure.
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