- March 6, 2025
- Kelvin Birk
- Bankruptcy
Many people who find themselves in a situation where they are overwhelmed with debt, being harassed by creditors, and faced with the possibility of losing their home and possessions, look for relief through filing for Chapter 7 bankruptcy. Chapter 7 is the most common form of bankruptcy for consumers as it eliminates most unsecured debt such as credit card and medical debt. It is over in a few months, so it allows you to get a fresh financial start and begin rebuilding credit quickly.
However, not everyone is eligible for Chapter 7. Your income and debt will be subjected to something called a “means test” to determine whether you qualify, by calculating your current monthly income based on the past six calendar months. If your income is below the Missouri median for your household size you are exempt from the test and may file Chapter 7, but everyone else needs to first “pass” the means test.
An experienced Missouri bankruptcy lawyer can examine your situation and let you know if are likely to qualify for Chapter 7 and explain what other debt-relief options may be available to you.
Understanding the Means Test in Missouri
The Means Test was introduced in 2005 to ensure that debtors who have enough disposable income to pay at least some money to their creditors file for Chapter 13 instead of Chapter 7 bankruptcy. To qualify for Chapter 7, filers must meet an income threshold of earning less than the median income in the state, after considering several factors. You start by determining your average monthly income and then multiplying that by 12 to determine your annual income for the purposes of the Missouri median income test.
If your currently monthly household income is less than the Missouri median income for a household of your size, you automatically qualify for Chapter 7. If you have a household income above the median in the state you may still qualify for Chapter 7 based on a complicated formula in the means test. In addition to having low income, you can be exempted from taking the means test . . .
- If your currently monthly household income is less than the Missouri median income for a household of your size
- If your debts are not primarily consumer debts
- If you are a disabled veteran and incurred your debt primarily during active duty or while performing a homeland defense activity.
To determine your average household income, average your monthly income over the last six calendar months. If you are over the median income limit and your income has declined over the last six months, you have the option of waiting one or more months to apply if this brings your income under the median level for Missouri.
Passing or Failing the Means Test
In calculating your income, you must include sources such as salary, business income, rental income, interest and dividends, pensions and retirements plans, amounts paid by others for your household expenses, and unemployment income. You must provide much of the information needed to complete the calculation from your own personal records.
After you have collected all the required information, you can then subtract all of your allowed expenses (such as obligations you are legally required to pay and expenses necessary for health and welfare) from your income to determine whether you pass or fail the means test.
You automatically pass the means test if your household income is under the median for a family of your size in Missouri. If your income is above the median, you must complete the full means test calculation, which may allow you to still file for Chapter 7.
Options if You Fail the Means Test
Chapter 7 is not necessarily the best option for everyone. Chapter 7 does not wipe out all debts, so you will still owe “secured” debts, state or federal income tax debts, or obligations such as child support, alimony or student loans, unless you can show “undue hardship.” You still must pay fines and penalties for violating the law, including traffic tickets and criminal restitution.
Chapter 7 bankruptcy is a liquidation bankruptcy, so a bankruptcy trustee will be appointed to gather and sell your nonexempt assets to pay creditors. However, there are Missouri bankruptcy exemptions that list types of property that cannot be sold, so you may be able to keep much of it.
Generally, Chapter 7 is a better option if you are not attempting to keep secured property like a home with a mortgage, but if you don’t pass the means test for Chapter 7, you still have other options:
- You can recalculate your means test if your financial situation changes for the worse and you still want to file for Chapter 7
- You may qualify for Chapter 13 bankruptcy, if appropriate
- You can consider debt negotiation or credit counseling as alternatives to bankruptcy
Let’s examine these alternative options to Chapter 7:
Chapter 13 — Chapter 13 bankruptcy is reorganization of debt that spreads repayment out over three to five years. In Chapter 13, some of your future earnings will be paid toward your current debts. At the end of your repayment period, some or all of your debts are usually discharged, depending on the amount of your future income and current debts.
One advantage of a Chapter 13 bankruptcy is that you usually can keep your home or vehicle, even if it is in foreclosure or you are behind on your payments. By working out a repayment plan over a much longer time frame than typically allowed, you create some breathing room for yourself to get back on financial track . Also, foreclosure proceedings are stopped once you file for Chapter 13.
Get Help with Debt Relief
Whether or not you can pass the Missouri means test, it can help to consult with an experienced debt-relief attorney to review your options and determine the most appropriate course of action for your individual circumstances.
The skilled and compassionate legal team at the Birk Law Firm can provide guidance and take care of all necessary legal hurdles and requirements to help achieve the best solution for you. Attorney Kelvin Birk is a Certified Public Accountant as well as a lawyer, with more than 30 years of experience in accounting and tax and business consulting. He knows how to help you determine whether Chapter 7 is your best choice and how to obtain a fresh financial start while protecting as many of your assets as possible under Missouri law.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
FREE CONSULT CALL NOW 573-332-8585
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
