Asked by Facienne Guerlanda on Jun 01, 2024
Verified
What is the purpose of the means test under Chapter 7? Describe briefly the dividing line that determines whether a debtor files under Chapter 7 or Chapter 13.
Means Test
A procedure used to determine eligibility for certain types of government assistance or legal aid, based on the financial situation of the applicant.
Chapter 7
A bankruptcy provision under U.S. law that involves the liquidation of a debtor's assets to pay off creditors.
Chapter 13
A portion of the U.S. Bankruptcy Code permitting individuals earning a steady income to devise a strategy for repaying their debts either in full or in part.
- Acquire knowledge about the purpose and impact of bankruptcy regulation in cases of financial difficulty.
- Distinguish between Chapter 7 and Chapter 13 bankruptcy proceedings and their qualifying criteria.
Verified Answer
IO
Isaac OtchereJun 07, 2024
Final Answer :
The purpose of the means test is to keep upper-income people from abusing the bankruptcy process
by filing for Chapter 7, as was thought to have happened in the past. The test forces more people to
file for Chapter 13 bankruptcy rather than allow liquidation of debts.
Debtors wishing to file for bankruptcy must complete the means test to determine whether they
qualify for Chapter 7. The debtor’s average monthly income in recent months is compared with the
median income in the geographic area in which the person lives. If the debtor’s income is below
the median income of the area in which the debtor lives, the debtor is usually allowed to file for
Chapter 7 bankruptcy, as there is no presumption of bankruptcy abuse. If the debtor’s income is
above the median income, then further calculations must be made to project the debtor’s income
and expenses into the future.
by filing for Chapter 7, as was thought to have happened in the past. The test forces more people to
file for Chapter 13 bankruptcy rather than allow liquidation of debts.
Debtors wishing to file for bankruptcy must complete the means test to determine whether they
qualify for Chapter 7. The debtor’s average monthly income in recent months is compared with the
median income in the geographic area in which the person lives. If the debtor’s income is below
the median income of the area in which the debtor lives, the debtor is usually allowed to file for
Chapter 7 bankruptcy, as there is no presumption of bankruptcy abuse. If the debtor’s income is
above the median income, then further calculations must be made to project the debtor’s income
and expenses into the future.
Learning Objectives
- Acquire knowledge about the purpose and impact of bankruptcy regulation in cases of financial difficulty.
- Distinguish between Chapter 7 and Chapter 13 bankruptcy proceedings and their qualifying criteria.