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The Means To Pay Your Debts And Chapter 7 Bankruptcy

26 January 2023

Michelle Garrett

If you are considering filing for bankruptcy, you should know a few basic facts about the rules concerning your income. Income is part of the qualifying process through what is known as the means test. To learn more details, read below.

How Much Money You Earn Matters

Filers didn't always have to fulfill income standards. However, too many people that the bankruptcy court thought should have been able to pay their debts were filing, and the codes were changed. This change meant that potential filers had to compare their income with their state's median income. The change was an effort to make bankruptcy available only for those who did not make enough income to pay their bills.

What Is the Means Test?

Part of your bankruptcy application contains what is known as the means test. The form asks the filer to fill in their income along with how many people make up their household. Only the last six months' worth of income is considered. In some cases, potential filers who earn too much income can still apply by making these moves:

• If they are expecting a drop in income in the next few months, it might be best to delay filing bankruptcy until their income drops and they can pass the means test.
• They could use the means test to locate and list qualified expenses that allow them to file even with a higher income. For example, those with higher than usual mortgages or medical expenses due to a medical condition could qualify to file. 
• They could file using chapter 13 instead of chapter 7. Chapter 13 has no income requirements or means test.

Using the Means Test to File

Any issues with excess income should be identified before you get ready to file. Your lawyer will let you know about the issue soon after you provide them with your income information. You may be able to file by completing the means test.  You can use the means test to show the bankruptcy court that you need financial relief even if your income is higher than the state median. Your bankruptcy lawyer will complete your bankruptcy forms for you and that includes the means test.

However, it's best to know what to expect with the means test. The second part of the form on the bankruptcy application allows filers to list their expenses. Those expenses may or may not be enough to pass the means test.

To learn more, contact a law firm like McManus & Associates. 

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