What is the means test?

Posted by Angelique CooperJul 03, 20190 Comments

Filing bankruptcy is often a difficult decision to make. However, it can be the best one because it can help you get control over your debts and start fresh. Many people in Alabama immediately think about filing Chapter 7 bankruptcy. This allows you to settle debts and only pay what you can afford through selling off non-exempt assets. After your case leaves court, it is final, and you do not owe anything further. The issue with filing this type of bankruptcy is that many people do not qualify for it.

To qualify for Chapter 7 bankruptcy, according to the United States Courts, you have to pass a means test. The means test looks at your income and limits this type of bankruptcy to only those below a certain income bracket.

The means test is based on your state's median monthly income. If you make more than that, then you probably cannot file Chapter 7 and will have to file Chapter 13 instead. The court will look at your monthly income over a five-year period and subtract certain expenses to get the figure it will use for the means tests.

Part of the reasoning behind this test is that in a Chapter 7 case, creditors usually get little of their money back because repayment comes from non-exempt assets. By reserving this option for only the lower income filers, it allows more creditors to get repayment through Chapter 13 by those who can afford to repay. Essentially, it helps make the bankruptcy system fairer for everyone. This information is for education and is not legal advice.