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What is a bankruptcy means test?

On Behalf of | Apr 23, 2020 | Firm News

Filing for bankruptcy may allow you to recover from overwhelming debt and return to a stable financial situation. There are two types of personal bankruptcy: chapter 7 and chapter 13. Each one has unique eligibility requirements, but both may help you pay off your debts in a reasonable and timely manner. 

If you decide to file for chapter 7 bankruptcy, you may have to pass a means test to determine if you meet the eligibility requirements. 

Debt and income 

You may decide to file for bankruptcy due to a high amount of debt, but debt is not the only thing that a bankruptcy court looks at. According to the United States Courts, there are rules designed to ensure you are not abusing the protections of chapter 7. In order to qualify for this type of bankruptcy, your income must be below a certain threshold and/or your living expenses must be high enough that you cannot recover from debt on your own. 

Chapter 7 means test 

One of the first steps in pursuing bankruptcy involves providing your income information to the court. The court compares your monthly income to the median income of your state. If your monthly income is more than that amount, you have to complete the means test. This calculation determines whether you should be able to pay off your debts with the disposable income you have left after paying your bills every month. You may not qualify for chapter 7 if there is a large difference between your income and your allowable expenses. If you fail the means test, however, you may still be able to file for chapter 7 if you are able to prove that your special circumstances justify an adjustment to the calculation of your expenses.