Chapter 7 Bankruptcy Eligibility in Alabama: Understanding the Means Test

Chapter 7 bankruptcy offers powerful debt relief by wiping out unsecured debts like credit cards, medical bills, and personal loans. But not everyone qualifies automatically. To file for Chapter 7, you must meet income-based eligibility rules established by the federal bankruptcy code. The primary tool used to determine if you qualify is called the means test—a formula that compares your income and expenses to state and national standards.

If you’re considering Chapter 7 in Alabama, understanding how the means test works is the first step toward knowing whether you’re eligible to pursue full debt discharge.

1. What Is the Chapter 7 Means Test?
The means test is a financial screening tool that determines if your income is low enough to qualify for Chapter 7 bankruptcy. It was designed to prevent high-income earners from abusing the process by discharging debts they could afford to repay. If your income is below the median for your household size in Alabama, you likely pass the test and qualify automatically.

2. How Does the Means Test Work?
The first part of the means test compares your gross household income from the last six months to the median income in Alabama. If your income falls below that threshold, you qualify without additional calculations. If your income is above the median, the second part of the test applies—this portion deducts allowed expenses such as rent, food, car payments, health insurance, and taxes. The goal is to see how much disposable income you have left each month to pay creditors.

3. What Happens If You “Fail” the Means Test?
If the means test shows you have enough disposable income to repay a portion of your debts, you may not qualify for Chapter 7. However, this doesn’t mean you’re out of options. Many people who don’t pass the means test still find relief through Chapter 13 bankruptcy, which allows them to restructure debt and catch up on past-due accounts.

4. Special Circumstances Can Affect the Outcome
Certain factors—like recent job loss, irregular income, or unexpected medical expenses—can affect the outcome of your means test. In some cases, adjustments can be made to reflect your current situation more accurately. This is why working with a qualified bankruptcy attorney is crucial. We can help you present a complete financial picture and explore every possible path to eligibility.

5. Even If You Qualify, Other Factors Matter
Passing the means test doesn’t guarantee your case will succeed. You must also meet other Chapter 7 requirements, such as completing a credit counseling course and disclosing all assets and debts accurately. You must also avoid transferring property or incurring new debt in the weeks leading up to filing. A bankruptcy attorney can guide you through every requirement to avoid pitfalls.

If you are considering bankruptcy, we can provide the support you need to help you navigate the process. Contact us by calling 205-875-8197 or by using the contact form below. We look forward to helping you!

Article written by Ron Senyor, Law Clerk