The means test is a calculation that helps determine if you qualify for a Chapter 7 bankruptcy. Essentially, it aims to verify if your income is low enough to be eligible for debt discharge, which is the elimination of your legal obligations to repay your debts.
However, the means test is a little too complex to sum it up in one sentence. If you are thinking of filing for Chapter 7 bankruptcy, here’s what you need to know to prepare for means testing.
How does the means test work?
A means test compares your current monthly income to the median income in Missouri. If your income falls under the state median, you may qualify for Chapter 7 bankruptcy because it proves that you don’t have enough means to settle your debts through a repayment plan.
The test does not just look at your income, though. It also takes the following factors into account:
- Family size: Larger households may have higher thresholds for the median income comparison and allowable expenses.
- Allowable expenses: These include national and local standard expenses, such as housing, food, utilities, transportation and healthcare.
- Disposable income: After subtracting the allowable expenses from your income, the test considers what is left over as disposable income. This value helps determine if you have enough disposable income to pay a portion of your debt.
You can calculate your income for the Chapter 7 means test to get a better idea of where you stand, financially. However, it’s best to work with an experienced bankruptcy attorney to ensure you are not over- or undercalculating.
What if I don’t pass the means test?
If your income surpasses the state median, you might still qualify for a Chapter 13 bankruptcy, which involves a repayment plan over a three- to five-year period.
Nevertheless, having a too large income does not mean automatic disqualification. You also have to take a look at your expenses. If your income is larger than the median but your allowable expenses are too high, you may still have a chance of passing the means test.
The means test can help find the right solution for you
Most debtors prefer filing Chapter 7 bankruptcy because of the debt relief. In any case, the means test is meant to help you determine which type of bankruptcy you qualify for and—more importantly—what would be better for your financial future.
