Chapter 7 Debtor - Definition
Changes in the definition of "Chapter 7 Debtor" affect all cases
|The legal definition of "Chapter 7 Debtor" - To qualify for discharge in Chapter 7, no person may file under this chapter if failing any one of the three prongs of the new means testing provision. In essence, anyone who maintains regular income must now file under Chapter 13.|
The restrictions on qualifying as a Chapter 7 debtor are new. Previously, almost anyone could qualify under Chapter 7 regardless of the value of property owned or the amount of income earned. After the new law amendments, three different means testing requirements restrict qualification for Chapter 7. Means testing compares total debt owed, to disposable income, and median income within the state. Median and average are not the same. Median income is the midpoint between the total number of wage earners (i.e. the amount earned by the 51st ranked person out of 101), whereas average is the comparison of the amounts earned (total earnings divided by number of wage earners). For states with large differences in income earned, the median income level generates a lower result than the average.