If you wish to cancel 100% of dischargeable unsecured debt (e.g. credit card and medical bills) under a chapter 7 bankruptcy petition, you must first determine if you earn at or below the state median income. Do it here: http://bestcase.com/onlinetools/cmicalc.aspx?s=39537 . If you earn above it and your debt is primarily consumer in nature, then you must perform the "means test" to determine if you can still do a chapter 7. You must show you have insufficient funds at month's end to support a plan to repay (at least a significant sum of ) unsecured debt under chapter 13 bankruptcy.

Here is the test in its primary source:

http://www2.law.cornell.edu/uscode/uscode11/usc_sec_11_00000707----000-.html

Note, the dollar amounts have been slightly adjusted from those featured in the link.

In more plain English the statute reads as follows: if you have more than about $183 in disposable (left over) income each month, you would have to do a chapter 13 plan over 5 years. If you have disposable funds between about $110 and $183, you could do a 7, rather than a 13 in the following circumstance. If by committing that disposable monthly income to 60 monthly payments, less than 25% of your total unsecured debt would be paid off, then you can still do a chapter 7. If you earn less than about $110, you can do a chapter 7, regardless of the percentage of debt that would be paid back.

An oddity of the calculation: in certain situations, having more unsecured debt might allow you to discharge all of it under a chapter 7. Having less unsecured debt might require you to repay some of it under a chapter 13 plan.

Picture this.

Homer owes $300,000 in debt pursuant to a judgment. Barroom brawl, property damage, don't ask. He wishes to file for chapter 7, yet he earns above his state median income. His attorney, Gil performs a means test. After deducting monthly allowable (e.g. housing/vehicle) and additional benefit-of-the-doubt-necessary (e.g. detoxification treatments) expenses, Homer is left with $150 in his pocket. Actually, his wallet's empty pursuant to his patronizing more barrooms. Though, for our purposes, we rely upon his theoretical possession of that one Benjamin and a half. It's the d'oh, I mean dough he would have if he limited expenses to those that were reasonable and necessary according to the means test. If he paid back $150 monthly for 60 months, he could repay $9000 out of the $300K debt over a 5-year chapter 13 plan. Yet, pursuant to Title 11 section 707, he is still eligible for a chapter 7. This is because the amount he could pay is a negligible-not-worth-judicial-resources-fraction of his full debt. However, if the judgment were for $35,000, then he would have to file a chapter 13 plan and would lose eligibility to file a 7. The reason: $9000 is a meaningful percentage of the total debt.

Here's another oddity for this publication space. If your unsecured debt exceeds $336,900, then you simply can't do a chapter 13. Thus, it's possible to fall between the cracks of eligibility for both chapter 7 and chapter 13. A complex and expensive chapter 11 might be the only alternative.

You will find strings attached and you will find catches in bankruptcy law. Law is a utilitarian concept and it cannot conceivably accommodate all situations.

Often there is no time to waste when the situation's dire. Yet, it's good to examine and anticipate the outcome before you commit to filing those bankruptcy papers.

Cited dollar amounts are subject to change.

The above citations of law are contextualized in an opinion format. No analogy or illustration in this blog can be relied upon as precedent. Factors and variables are omitted and simplified in the stories. Potential bankruptcy petitioners are admonished not to take significant monetary or transactional action or inaction without seeking legal counsel. Interpretations of law are subjective.