If you are considering filing for bankruptcy and have begun researching the process involved in doing so, you may have come across the term “means test,” and you may be wondering what it is and what it entails. Essentially, the bankruptcy means test determines whether you may file for debt forgiveness through a Chapter 7 bankruptcy or whether you must do so through a Chapter 13 bankruptcy, which involves restructuring existing debts.
If you undergo a bankruptcy means test, you can expect a close review of your income, your current expenses and your family size to determine your ability to pay back your debts.
Steps involved in means tests
The first step in the means test process involves assessing your household income and determining whether it falls below the median income in place in Louisiana. Typically, the test only considers your past six months of income, although the means test may take into account recent changes, such as job losses or demotions that occurred within the past six months, too. If your income falls below the median income in your state, you pass the means test, plain and simple.
If you do not qualify for a Chapter 7 bankruptcy after the first step, you must next gather all documentation relating to your expenses for the past six months. Any money left over counts as “disposable income” you should be able to use to pay off your debts. If your disposable income falls below a certain threshold, you may still be able to qualify for a Chapter 7 bankruptcy.
After the means test
Should you pass the means test, you have the green light to move forward with your Chapter 7 bankruptcy filing. Should you fail, you can file for Chapter 13 bankruptcy, or you can also wait another six months to see if conditions improve and then try and take the means test again.
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