What Is a Bankruptcy Means Test and What Does It Mean to You?

Submitted by Rachel R on Tue, 08/20/2013 - 10:05pm

What Is a Bankruptcy Means Test and What Does It Mean to You?

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A bankruptcy means test is what determines whether you qualify for a Chapter 7 bankruptcy. The means test verifies whether or not you can truly afford to pay your debts and whether you should get the benefit of a bankruptcy fresh start. In 2005, the US bankruptcy code underwent a massive revision in an attempt to block some consumers’ ability to file for bankruptcy. The means test is a tool used to do this – to potentially block you from filing for debt protection.

The good news is, I can tell you what the means test might mean for you and give you all the information you need! Here are the facts you need to know about the Chapter 7 means test:

#1 You May Not Be Subjected to the Means Test I see all the time that the means test isn’t a hurdle because it never comes into play. The first step is to determine if your income falls within the range that would require use of the means test. Click here to see the most recent chart. If your income for your family size falls below the state median income, the means test won’t apply. If you’re worried about the means test and want an idea of how it will work out for you, try this bankruptcy means calculator to see how you may fare.

#2 You Should Be Able to Overcome the Means Test In Many Cases Even if your income exceeds the median income, that’s not the end of it. I often see that even for those who have to “take” the means test, they “pass.” From your income, the test (which is actually Form 22-A provided by the bankruptcy court) then deducts amounts for food, clothing, out of pocket healthcare costs, housing, utilities, non-mortgage expenses, transportation costs, taxes, payroll deductions, life insurance, court ordered payments, childcare costs and telecommunication services.

Your income, less these deductions, is then compared to the total debts you have. If you have a sizable amount of disposable income left over after all of this, you may not qualify for Chapter 7 bankruptcy – which only makes sense because you should be able to accommodate your debts if you have that much room in your budget!

#3 You May Pass the Means Test But Still Want to Reconsider Chapter 7

I often talk to people who easily pass the Bankruptcy Means Test - and are therefore eligible to file a Chapter 7 to discard their debt – but for who a Chapter 7 is not the best option. There are some upsides and downsides to a Chapter 7 versus a Chapter 13. Just because you qualify for a 7 doesn’t mean you still shouldn’t consider a 13 instead. How do you know?

Contact a reputable North Carolina bankruptcy attorney like the law offices of John T Orcutt to discuss your means test and your options to deal with your debt. They offer a free consultation and will sit down and review your debts with you and tell you the pros and cons of each type of debt relief program and give you valuable advice on what’s the best option given your income, debts and financial circumstances.

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