What Is Bankruptcy Means Test and Why Does It Matter

If you want to know whether you qualify for Chapter 7 bankruptcy, you’ll need to take a bankruptcy means test. Keep reading to learn more.


What Is the Means Used Test for?

If you are weighed down with loads of debt, the best option for you may very well be to file for bankruptcy. Contrary to popular belief, bankruptcy is not a damaging action to take as it eliminates your debts and allows you to rebuild your credit and finances from scratch.

There is more than one form of bankruptcy and in order to determine which kind you are eligible to file for, you must take what is known as the means test. Most importantly, by taking the means test, you can determine whether you qualify for Chapter 7 bankruptcy.

The means test was implemented to limit the eligibility of debtors seeking debt forgiveness under Chapter 7 bankruptcy. However, the majority of individuals pass this test easily.

Those who fail the means test do not qualify for Chapter 7. However, they may be eligible for Chapter 13 bankruptcy. They can restructure their debts to repay them, as well as retain certain assets, such as a house or an expensive car.

Although the means test is for those debtors who primarily have consumer debt, such as credit card or medical debt, those whose debt is mainly from a business they own won’t need to pass the test. The means test also plays a part in setting the repayment schedule for Chapter 13 bankruptcy.


The Means Test: What does it involve?

The means test assesses your income, expenses, and family size to evaluate whether you possess enough disposable income for debt repayment. In basic terms, the means test calculates your ability or inability to repay your debts by comparing your amount of income to your expenditures.

These expenditures must be important living expenses such as food, clothing, utilities, transportation, medicine, etc. Any expenses that are not considered vital are not taken into account. Once your monthly expenditures are deducted from your monthly income, it can be determined whether or not you can afford to repay your debts.

If you have no income due to job loss or if you have extreme debts due to sudden injury, or illness, a means test may prove you eligible for Chapter 7 bankruptcy. This allows you to sell all property that is not considered a bankruptcy exemption and use the profit towards your debt, at which point the rest is discharged.

In the case that you have a steady income, a means test may consider you eligible to file under Chapter 13 Bankruptcy. This type of bankruptcy sets up a repayment plan over the course of three to five years and discharges any remaining debts after the term is up. To learn more about bankruptcy or any alternative options, call Cherney Law Firm LLC.


How Does Bankruptcy Means Test Work?

The means test calculation is a two-step analysis. But, many low-income families don’t have to worry about the second step.

Firstly, the means test will be used to check whether your household income is below your state’s median income. Your “current monthly income” is the gross income you earned over the six months before filing for bankruptcy. That period is known as the “look-back period.” To calculate the current monthly income, divide the whole amount by six. If it’s less than the median income, you’ll pass the means test.

You can see your state’s median income on the census bureau median family income by family size chart by the Department of Justice.

But remember, you won’t automatically fail if you earn more than the median income. There may be another way to qualify.

For step two, a petitioner has to document how much money was spent on essentials. Essential expenses, also called allowable expenses, include rent or a mortgage, medical bills, food, and clothes. What’s left after deducting allowable expenses is disposable income that can be used to pay off debt. If your disposable income is too high, you’ll fail the Chapter 7 means test and won’t be able to discharge qualifying debts.

Be careful. If you make a mistake, such as omitting items, the Bankruptcy court can dismiss your bankruptcy case.


Have More Questions About Bankruptcy Means Test? Contact My Marietta Bankruptcy Firm

To find out how a Marietta bankruptcy attorney could help you take a means test and pursue the most beneficial form of debt relief, call my firm for a free case evaluation. I have represented individuals in bankruptcy cases since 2006 and I will seek to obtain the most favorable results possible for your situation.

Each of my firm’s clients receives my full attention and dedication, meaning that you should never feel lost or confused during the bankruptcy process. To find out more, call now and schedule an appointment for your consultation. We offer weekend appointments in addition to our normal weekday hours to make it easier for you to get the help you need.

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