Chapter 7 Bankruptcy and the Means Test – What You Should Know

If you are thinking to file for Chapter 7 bankruptcy, then you will have to pass the means test. You need to know that it is the means test which will help you know if you really earn below your means and thus, require filing Chapter 7 bankruptcy. The individuals who earn a good salary and cannot pass the means test may use Chapter 13 bankruptcy for paying off some of their outstanding debts. However, they might not be using Chapter 7 bankruptcy to eradicate all the debts.

Taking the means test will not mean that you are going to be left without any money for the sake of filing Chapter 7 bankruptcy. If you want to know your eligibility criteria for the means test, then you may use bankruptcy means test calculator.

How does it work?

The means test has been made to restrict Chapter 7 bankruptcy usage for the individuals who really will not be able to pay off their debts. Your fixed monthly expenditures will get subtracted from the present monthly income in order to reach your disposable income. Thus, the higher your disposable income is, the more you will not be allowed to use Chapter 7 bankruptcy.

The bankruptcy filers who have consumer debts will only have to take the means test. In order to take the means test, you will have to find out if your monthly income is more or less than your state’s median income. Now, if you are earning more than the median, then you should determine if you’re going to have sufficient money with you, after deducting some of your expenses for eradicating some debts.

What Happens When You Pass the Means Test?

If you qualify the means test, then it does not mean in anyway that you will have to file for Chapter 7 bankruptcy. The decision that you take to file bankruptcy should be taken only after you look at the other options that are available for you.

And If You Don’t Pass?

In case you do not pass the means test, then you’ll be restricted for using Chapter 13 bankruptcy. This will need to make the payments every month for a period of 3 to 5 years as per a tight budget that is observed by the court. Most individuals who file for Chapter 7 bankruptcy will not need to repay. While for Chapter 13 bankruptcy, it is yet considered to be the most suitable way for managing particular kinds of problems such as trying to manage a defaulted mortgage.

It is important that you talk to a bankruptcy attorney before you decide to take the means test. Thus, with the help of their advice, you may ultimately be able to pass the means test.


*This post was contributed to the Joshua Just blog by a guest writer. 

Andrew Jackson, financial counselor associated with Oak View Law Group, APC now for over 4 years. He analyses people’s financial situations minutely and advises on different debt relief options available. He also helps people manage their budgets through free counseling.


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