When filing for Chapter 7 bankruptcy, you’ll likely go through an evaluation of your finances to determine whether you qualify. This is known as the means test. It works by comparing your income to the median income for a household of your size in your state.
The goal is to determine how much disposable income you have left after covering essential living expenses. This ensures that only those who truly can’t afford to repay their debts qualify for a debt discharge under Chapter 7.
Failing the means test doesn’t mean you’re stuck
You fail the test when your income and allowable expenses show you have enough disposable income to repay some of your debts. However, it doesn’t mean bankruptcy is off the table. It just means Chapter 7 may not be an option for you at the moment.
You can still file under Chapter 13, which involves setting up a repayment plan. You can then make periodic payments based on what you can reasonably afford. At the end of the plan, any remaining eligible debts may be discharged.
Can you challenge the results?
If you believe the means test results do not accurately reflect your financial situation, you may challenge them. This involves reviewing the calculations for any errors or omissions and providing documentation that justifies additional necessary expenses that weren’t initially considered.
Can you try again?
Sometimes, people fail the means test due to a temporary spike in income, like a bonus or short-term job. If your financial situation changes, it may be worth waiting a few months and trying again.
Having qualified legal guidance when filing for bankruptcy is essential. It can help you understand your options, avoid mistakes that could derail your efforts and ensure your financial reality is accurately presented as you work toward a fresh start.
