An Overview of the Means Test

 Posted on March 20, 2020 in Bankruptcy

Chapter 7 is used commonly for personal bankruptcies. Chapter 7 is a liquidation bankruptcy. Nonexempt assets of yours will likely be seized to pay creditors, and most of your unsecured debts (debts with no collateral) will be discharged within a matter of months.

Based on these benefits, you can see why Chapter 7 is attractive for many debtors. At its best, bankruptcy gives you a clean financial slate from which you may work diligently to rebuild your credit and finances on a solid foundation. However, not everyone is eligible for a Chapter 7 bankruptcy. To be eligible, you must first pass what is called the means test.

What is the Means Test?

The means test is a formula that figures your monthly income against your debts to determine if your situation warrants a Chapter 7 bankruptcy. The basic tenet is that if you do not bring in enough money per month to even make a dent in your debts, then Chapter 7 is the way to go.

• Step One: The first part of the means test is to calculate your household income and compare it to a similar-sized household in your state. If it is lower than the median amount, then you have passed the means test and can proceed to file for Chapter 7 bankruptcy. If it is higher, then you must go to step two:

• Step Two: If your household income exceeds the median amount, then you must come up with your allowed expenses (these vary by state) and deduct them from your monthly income. If you have a certain amount left over (disposable income), then you have failed the means test and will not qualify for Chapter 7 bankruptcy.

As a caveat, passing the means test does not automatically grant you a Chapter 7 bankruptcy. You must fill out a number of forms and report many aspects of your financial situation to the bankruptcy court to affirm that you can proceed with a Chapter 7 filing. Another caveat is that just because you are able to file for Chapter 7 does not mean this is the better choice for you.

Contact Blossom Law PLLC

We know, for a fact, that your best days are in front of you. Bankruptcy is not a dirty word. It is a useful tool for millions of Americans. Want to see if it's the right path for you? Get in touch with Attorney Rashad Blossom today by calling 704-256-7766. Contact Blossom Law PLLC today. We offer complimentary consultations to prospective clients (a $150 value - free!)