Faqs About The Chapter 7 Means Test
In order to qualify for Chapter 7 bankruptcy, you must meet certain requirements. One of those requirements is the means test. If you fail to meet this requirement, your bankruptcy could be in jeopardy. Before filing for bankruptcy, here is what you need to know about the means test.
What Is the Means Test?
The means test is basically a way for the bankruptcy court to determine if you have any disposable income that can be used to pay off your debts. The test factors in your income, household size, and monthly expenses. There are two parts to the test.
The first part compares your income to the median income for households your size. The median income varies by state. For instance, in Alabama, the median income for a family of three is $54,055. By contrast, the median in Delaware for a family of the same size is $74,033.
If your income is below the median for your state, you can move to the second part of the test. The second part involves deducting your expenses from the income and determining how much is left to be considered disposable income. Expenses include mortgage, utility bills, and medical costs.
What If You Do Not Pass the Test?
There are a few available options if you do not pass the means test. You can choose to wait until you are eligible. It is important to note that if you do wait, your creditors can take legal actions against you. For instance, your mortgage lender could choose to repossess if you are behind in your payments.
You can also choose to file for a Chapter 13. This type of filing would give you the chance to pay off your debts without losing any of your possessions. At the end of the repayment period, your remaining debts would be discharged.
Another possible solution is to opt for debt settlement. With debt settlement, you would negotiate with your creditors to pay a portion of the debts owed. This could offer a break from the collections process.
Your bankruptcy attorney can also re-evaluate your expenses to determine if there are some overlooked ones that could potentially help you pass. For instance, retirement plan deductions, child care costs, and regular charitable contributions are often overlooked and can be used in the means test.
To find out what other strategies are available to help you pass the means test, work with an experienced bankruptcy lawyer.