Means Test for Bankruptcy

The means test helps decide whether a person or household qualifies for debt forgiveness or financial benefits. The means test considers your expenses, monetary resources, income, and size of your family in determining whether one has disposable income enough to pay back debts. A bankruptcy means test also determines who is eligible to get their debts forgiven via Chapter 7 bankruptcy. Taking the means test early is one of the most critical steps to take when filing for bankruptcy.

Understanding How Means Tests Work

Means tests are mainly used in determining the eligibility of individuals or families for different types of relief or financial assistance. The means test decides whether one is eligible for Chapter 7 bankruptcy or restricted to Chapter 13 bankruptcy. This test is divided into two categories (if you pass and fail the means test). Both are designed to check whether any disposable income a debtor can use to pay off debts. The means test is essentially for people who mainly have consumer debts, such as medical or credit card debts; however, there is no need to pass the means test if the debts accrued are mostly from their own business.

If you pass the Bankruptcy Means Test

If you pass the means test, you can file for Chapter 7 bankruptcy, which implies that most unsecured debts such as credit card debts and medical bills will be forgiven.

If you fail the Means Test

Failing the means test does not come with a chance of an appeal. It also doesn’t mean that such a person is immediately confined to Chapter 13, significantly if you can delay filing for a while. You are eligible to retake the test in six months if you feel your financial situation would have been a better chance to meet the debt forgiveness requirements for Chapter 7. However, if it doesn’t look likely that you can pass the means test in six months or you can’t delay any longer to file for bankruptcy, you’ll be immediately confined to a Chapter 13 and will repay your debts over three to five years.

If you would like more information about the means test, contact a Plano bankruptcy attorney.