Understanding the bankruptcy means test

On Behalf of | Aug 28, 2020 | Chapter 7 Bankruptcy |

For individuals who are facing financial hardships in North Carolina or across the U.S., a bankruptcy means test can determine whether they can obtain debt forgiveness through filing for Chapter 7 bankruptcy. By evaluating an individual’s income, expenses, and taking other factors into account, the test determines if the person has sufficient disposable income available to repay his or her debts. When individuals fail to pass a bankruptcy means test, they may consider restructuring their debts by filing for Chapter 13 bankruptcy.

A bankruptcy means test determines whether a person is eligible to file for Chapter 7 or Chapter 13 bankruptcy. The test consists of two parts that are each designed to measure whether the individual has enough disposable income to repay debts. The first part factors whether the individual’s income falls below the state’s median income. If mainly focuses on the last six months of income, but there may be adjustments allowed for upcoming changes such as unemployment.

The second part of the test takes the person’s last six months of expenses into account. After reviewing how much income was used for rent, utilities, groceries, medical bills, and other expenses, whatever income is left over is considered to be disposable income.

People who pass the bankruptcy means test are allowed to file for Chapter 7 bankruptcy which dismisses most unsecured debts such as credit cards and medical bills. For individuals who fail the test, it doesn’t necessarily mean that filing for Chapter 13 bankruptcy is their only option. When financial situations are beyond an individual’s control, he or she should consider consulting with an experienced Chapter 7 bankruptcy attorney. An attorney may be able to help a person move forward from debt and obtain a fresh start by filing for Chapter 7.