Important Steps To Bankruptcy You Don’t Want To Miss Out On!

The “means test” is the name given to a test that the bankruptcy court imposes on those who file Chapter 7 bankruptcy in order to determine if their income is too great for this type of case.  Even if you are not eligible for Chapter 7, most debtors can still file a Chapter 13 bankruptcy case.

How The Means Test Works

The purpose of the means test is to determine if you have enough assets to pay back some of your creditors.  Chapter 7 is really meant as a liquidation bankruptcy; this means that you give up your assets in exchange for a discharge.  However, even in Chapter 7, you are allowed to keep a certain amount of property due to exemptions. What the court wants to prevent is someone filing Chapter 7 who actually has enough equity and assets to pay back some or all of what is owed to creditors.  The means test prevents those with higher incomes from filing for protection and avoiding creditor payments.

How Is The Means Test Conducted?

The means test will look at your monthly income and expenses, averaged over a six-month period.  If you have a high level of disposable income, you may not be allowed to file Chapter 7. The means test compares your income to the median income in your state.  If your income is higher than the median, you must subtract your expenses to determine if you have money left over to pay your creditors.  If your income is lower than the median, you will likely be able to file a Chapter 7 case.

I Passed the Means Test.  Now What?

If you pass the means test, you will usually be allowed to file Chapter 7.  If you do not pass the test, you may be required to file a Chapter 13 case.  This means that you will make payments to the bankruptcy trustee, who will then distribute that money to your creditors.  In order to file a Chapter 13 case, you must also meet certain income and eligibility requirements. Deciding whether to file a Chapter 7 or Chapter 13 case can be very confusing.  Contact the attorneys at Oswalt Law Group for help with your bankruptcy.  We have years of experience in helping people resolve their debt issues and ultimate harness the power of bankruptcy to remove their debt and get a fresh financial start.