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What is the bankruptcy means test?

If your struggles with debt have pushed you to the point of considering bankruptcy, many in Gastonia may advise you to file under Chapter 7. The main reason for this is it allows certain debts to be discharged and offers you a faster path back to financial solvency. It also may allow you to keep certain assets (such as your home) due to bankruptcy exemptions. However, the protection and benefits afforded through a Chapter 7 bankruptcy must be qualified for in order to keep people from abusing them. Your qualification is determined by evaluating your financial situation using the bankruptcy "means test." 

Prior to applying the criteria of the of the bankruptcy means test, your current monthly income must be determined (this is your net income, not your gross). If that number is lower than the median for your particular demographic group in your state, you automatically qualify for a Chapter 7 bankruptcy. If it is not, then the means tests is applied. According to the website for the Administrative Office for the U.S. Courts, your income is projected out over five years. If it is greater than $12,850 or 25 percent of your nonpriority unsecured debts (e.g., credit cards, medical bills, utility costs), then abuse is presumed and you cannot file for Chapter 7. 

Bankruptcy protection might still be possible, however, even if you fail the means test. You may still be able to file under Chapter 13. In this scenario, rather than having your debts discharged, you would enter into a repayment plan with your creditors to repay them over a period of three to five years. 

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Sigmon & Henderson, PLLC
518 S New Hope Road
Gastonia, NC 28054

Phone: 704-269-6374
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