The means test is used to determine whether or not a debtor is eligible for Chapter 7 or Chapter 13 Bankruptcy protection. Until 2005, the judges decided whether a person could file for Chapter 7 but since 2005, there have been specific requirements for filing a Chapter 7 bankruptcy protection.
About means test
If you are planning to file for bankruptcy, then you will need to comport with the means test requirement to determine if you are eligible for Chapter 7 or Chapter 13. The process is based on a formula which determines if a debtor is capable of paying off some or all of his or her debt through a repayment plan. If the means test shows that the debtor has excess income after factoring in allowable monthly expenses, the debtor will not be able to file a Chapter 7 bankruptcy. Instead, the debtor will have to file a Chapter 13 bankruptcy and repay some of the debt through a repayment plan.
Is the means test complicated?
The means test can get very complicated at times. First, the debtor’s gross monthly income must be determined. This requires analysis of the debtor’s financial documents, such as bank statements and pay stubs for the last half year. If the debtor owns his or her own company, additional documents may be required. If this monthly income is lower than the state’s median, the debtor will be eligible to file for Chapter 7 bankruptcy.
But if one’s income exceeds the median, then the debtor’s monthly expenses must be carefully further accessed. It is possible to qualify for Chapter 7 while exceeding the state’s median, but it is highly recommended that you consult a bankruptcy attorney to assist you in this matter. This process involves calculating monthly expenses such as payment of taxes, education cost, mortgage cost, automobile coats, costs related to health care, as well as insurance costs.