Bankruptcy Means Test

If you are filing for a Chapter 7 bankruptcy, then you should prepare for the means test. The means test is essentially a mechanism that prevents higher-income individuals from going through a Chapter 7 bankruptcy. The means tests ensure that only bankruptcy filers with primarily consumer debts use Chapter 7 as their debt relief option.

What is a Means Test, and how does it work?

The means test takes note of your monthly income, expenses, and the size of your family and decides whether you have the income to pay back your debts. It compares a debtor’s previous six months’ income explicitly to the debt that is owed. If your income is below your state’s median income, then you can pass the means test. In case your income is above the state’s median income, then there is a second step for you. The median test then asks you for your disposable income (the income left after your monthly expenses). If your disposable income is higher than a specific fixed-rate, you will fail to pass the means test.

What happens after you pass or fail a means test?

If you pass the means test, then you can file for Chapter 7 bankruptcy. If you fail the means test, then it does not mean it is the end of the line for you. You can hold off on filing for the bankruptcy for a bit and then ensure you can get your disposable income to a lower rate for a Chapter 7 filing. You can also choose to go with Chapter 13 filing and pay back the debt in three to five years. Contact a McAllen bankruptcy attorney before taking the means test to ensure you choose the best available bankruptcy process for your needs.