A Chapter 7 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under Chapter 7 of the Bankruptcy Code. Chapter 7 is that part (or chapter) of the Bankruptcy Code that deals with liquidation. The Bankruptcy Code is a federal law that deals with bankruptcy. A person who files a chapter 7 case is called a debtor. In a chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor’s creditors. In return, the debtor receives a chapter 7 discharge, if he or she pays the filing fee, is eligible for the discharge, and obeys the orders and rules of the bankruptcy court.

Means testing is a method of determining a person’s eligibility to maintain a chapter 7 case.  Means testing is only required in situations where a chapter 7 debtor’s debts are primarily consumer debts as opposed to business debts.  Under means testing a person whose current monthly income from all sources multiplied by 12 exceeds the median annual income, as reported by the U.S. Census Bureau, for the person’s state and family size, must show that he or she is not able to pay a minimum required amount per month for 60 months to his or her unsecured creditors from his or her disposable monthly income in order to be eligible to maintain a chapter 7 case.  Disposable monthly income is a person’s current monthly income from all sources less the person’s permitted current monthly expenses.  The chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay a minimal required amount per month or more to unsecured creditors for 60 months will be dismissed or converted to chapter 13 unless special circumstances exist.

When a chapter 7 case is filed by any ineligible person, under bankruptcy terminology that person is said to have abused the chapter 7 laws.  When a person whose current monthly disposable income is such that he or she can afford to make monthly payments to unsecured creditors in the required amount, a presumption of abuse is said to arise in the case.  If a presumption of abuse arises in a case, the case will be dismissed or converted to chapter 13 unless the person filing the case can prove the existence of special circumstances, such as a serious medical condition.