Most people struggle financially from time to time, but if your debts are becoming overwhelming, one option to restart your financial life is to file for Chapter 7 bankruptcy. Not everyone qualifies for Chapter 7 bankruptcy, and the method used to determine whether you can utilize this financial option is with the Means Test. At Cornwell Law Firm in Duluth, our experienced bankruptcy attorneys can assist with this and many other aspects of a bankruptcy case. To learn more about your legal options, call or contact the office today to schedule a consultation.

What the Means Test Measures

The Means Test measures a person’s income in order to determine whether they qualify to file for Chapter 7 bankruptcy. This type of bankruptcy is reserved for those with low income and substantial debts, although there are situations with high earners can also qualify for Chapter 7 bankruptcy if they also have substantial expenses. The reason for the Means Test is that Chapter 7 bankruptcy is reserved only for those who cannot pay off their debts, as opposed to debtors who may be able to pay down their debts over time in a Chapter 13 bankruptcy process. This test serves as a gatekeeping function, and an experienced lawyer can help determine whether you qualify.

How the Means Test Works

The Means Test for Chapter 7 bankruptcy takes into account a person’s income, expenses, and family size in order to determine whether they qualify for this type of bankruptcy proceeding. The test has two parts, with the first part testing whether the debtor’s household income is below the state’s median income level. The test looks back over the last six months, with adjustments allowed for recent or upcoming changes. If a debtor passes this step of the Means Test, they are eligible for Chapter 7 bankruptcy. If they are not, then the debtor moves to the second part of the test.

The second part of the Means Test determines a debtor’s disposable income. The debtor needs to collect documentation about all of their allowable expenses over the last six months, which can include items like groceries, rent, mortgage payments, car payments, clothing, educational expenses, medical costs, and more. Allowable expenses can change based on location, as the IRS uses national and local standards for this element of the Means Test. Once all allowable expenses are deducted from the debtor’s household income, the remainder is the disposable income. If this income is low enough, the debtor passes the Means Test and can file for Chapter 7 bankruptcy. If not, they must file for Chapter 13 bankruptcy instead. To discuss your options for bankruptcy and for assistance with the Means Test, talk to our office today

Call or Contact Us Now

At Cornwell Law Firm, our experienced bankruptcy attorneys have helped many clients in the Duluth area with the Means Test and their bankruptcy proceedings. To learn more, call the office or contact us today to schedule a consultation.

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