A quick bankruptcy filing can erase all of your debt, make the bill collectors stop calling, and give you a free pass to a better future. This is how many people think about chapter 7 bankruptcy, but then they learn about the Means Test. For some, this test bursts the bubble of hope and puts a price tag on that pass to a better future.
What is the Means Test?
The means test uses three factors to determine whether you are financially allowed to go through with a chapter 7 bankruptcy filing:
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The median income for households of your size in your state. Your total income. Your expenses.
In order to be considered eligible for chapter 7 bankruptcy filing you have to meet one of these criteria:
Your total income is less than the median income for a family of your size in your state. Your income is higher than the state median, but you have enough expenses to justify a bankruptcy filing at this time.
The basic goal of the means test is to make sure that people who have enough disposable money to pay their bills are not able to file for chapter 7 and erase debt just to get out of paying. If you have the ability to free up some of your income and pay back your debt, then you should be forced to do so.
If you have enough free income to pay back some of your debt but not all of it, then you will likely be suggested for a chapter 13 bankruptcy filing rather than the chapter 7 filing. Chapter 7 completely erases away your debt while chapter 13 allows you to restructure the payback so it is more affordable to your current income.
Passing the Means Test
There are some calculators online that will help you determine your chances of passing the means test before you actually go in for a consultation with a bankruptcy lawyer. In preparation for using the calculator or seeing a lawyer, you will need to determine your total income and add up all of your expenses.
Not all of your expenses will count toward the means test. This varies from one state and county to another, but most will allow you to offset all the basic expenses of living such as your mortgage and car payments. What other expenses count in the test will be determined by where you live.
If you figure out the median income for families of your size in your state and you make less than that, then you know you will pass the means test. In order to move on and take the complete test you have to make more than the median in your state. Just make sure you are looking at the current median income and that you are comparing for the size of your family.
Note that the means test considers your income level for the six months prior to the bankruptcy filing. So, if you have recently taken a dip in pay wait six months or more to take the means test so your new income level is accounted for.
If you can't pass the means test, then you may still be considered eligible for a chapter 13 bankruptcy filing.
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