If you are in serious debt, then you may be contemplating bankruptcy. Bankruptcy is a process that can help you resolve large amounts of debt. There are two common forms of bankruptcy for individual filers. You may be eligible for Chapter 7 bankruptcy to wipe away most of your debts within a few months. Or, you may be eligible to reorganize your debts into a payment plan through Chapter 13 bankruptcy.
You must complete a means test before you file for an individual bankruptcy. A means test determines whether you are eligible for Chapter 7 or Chapter 13 bankruptcy. Here is what you should know:
How does the means test impact your bankruptcy filing?
Many people are not eligible for Chapter 7 bankruptcy. To determine who can file for Chapter 7 bankruptcy, debtors must file a means test. A means test compares your income and debt to the median income of your community. This test evaluates whether you can afford the basic necessities, such as food and clothing, based on where you live, your income level and household size. If your income is below your community’s median income for your household size, then you may be eligible for Chapter 7 bankruptcy. However, if your income is above the median income, then you may be required to file for Chapter 13 bankruptcy.
The means test can also impact your Chapter 13 bankruptcy filing. If your income level is less than the median income for your community, then you may be required to pay off your debts for three years. However, you may have a five-year commitment period to pay off your debts if your income is above the median income for your community.
Legal guidance can help you file the correct means test forms for Chapter 7 and Chapter 13 bankruptcy.
