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Understanding the means test in Tennessee

Most Tennessee residents who are considering filing a bankruptcy petition realize that they must decide between filing under Chapter 7 or Chapter 13. Prospective filers also understand that most, if not all, debts can be discharged in a Chapter 7 proceeding and that a Chapter 13 proceeding can only help the debtor renegotiate the terms of existing debts to allow more time to pay or, in some cases, to reduce the balance due. Most debtors prefer Chapter 7 for obvious reasons, but Chapter 7 does not provide relief for every bankruptcy filer. In order to be eligible for Chapter 7 and the total discharge of most obligations, a debtor must first pass what is called the "means test."

The means test is intended to prevent persons with significant annual incomes from discharging their debts in a Chapter 7 proceeding. In order to qualify for relief under Chapter 7, a debtor must demonstrate that his or her annual income is less than the Tennessee median for a household of comparable size. The median income is determined by averaging the debtor's monthly income over the last six calendar months. Once determined, a person's monthly income is multiplied by 12 to determine his or her annual median income. As of this writing, the Tennessee median income for a one-member household is $39,759, for a two-member household the median income is $48,053.00. For a 3-member household, the median income is $56,042.00. The annual limit increases by slightly less than 10% per household size before capping at $111,405.00 for a 10-member household.

If a person's annual income exceeds the limit for the person's household size, then the means test can only be satisfied if, after calculating the debtor's income and expenses, he or she meets income qualifications. This calculation is aided by information provided by the state of Tennessee, the Census Bureau, and the IRS. If a person's net income after deducting allowable expenses falls under the income limit, then that person may be eligible for relief under Chapter 7.

Satisfying the means test can be a significant barrier to a Chapter 7 filing. The services of an experienced bankruptcy attorney can be a valuable aid in making the necessary calculations and pursuing the appropriate type of bankruptcy relief.

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