What Is the Means Test for Bankruptcy and How Does It Work?
If you’re considering filing for bankruptcy in Pennsylvania, you may already understand how important it is to evaluate your financial circumstances carefully. The means test is an important part of the process for many individuals, particularly those considering Chapter 7 bankruptcy. It is designed to examine a person’s finances to help determine eligibility.
Understanding how the means test works can make the bankruptcy process feel less overwhelming.
What Is the Bankruptcy Means Test?
The bankruptcy means test is a financial calculation used in some personal bankruptcy cases, particularly Chapter 7. Chapter 7 bankruptcy can help individuals eliminate certain qualifying debts and get a fresh financial start.
The means test typically begins by looking at your average monthly income during the six-month period before you file for bankruptcy. Depending on the circumstances, income considered may include wages, salary, commissions, business income, and unemployment compensation. The means test may also review your:
- Housing and transportation expenses
- Certain taxes and insurance expenses
- Necessary living expenses
- Secured debt payments
- Certain other allowable deductions
Gathering documents in advance can make the process easier. Useful records may include recent pay statements, tax returns, bank statements, loan information, monthly bills, and documentation relating to other sources of income or expenses.
The Outcome of the Means Test
After your income is reviewed, it is compared with the applicable median income for a Pennsylvania household of the same size.
Because the calculations can be complicated, accuracy is important. If your household income falls below the Pennsylvania median, you generally pass the first part of the means test. This does not automatically guarantee Chapter 7 eligibility, but it can mean that the more detailed portion of the test is not required.
If your income is above the Pennsylvania median, additional calculations may be necessary. These calculations account for certain allowable expenses and other deductions to determine the amount of disposable income available to repay creditors.
What Happens If You Do Not Pass?
Certain factors can affect the results of the test, so failing the means test does not necessarily mean you have to give up on Chapter 7. If the means test shows that you may have enough income to repay some of your debts, you may still be able to qualify for Chapter 7 depending on your specific circumstances.
In some situations, if the results indicate that you may have enough disposable income to repay creditors, Chapter 13 bankruptcy may be a more appropriate option. Chapter 13 allows eligible individuals with regular income to create a repayment plan while receiving certain protections from creditors.
Find Trusted Legal Support at Audi Law PLLC
For individuals facing significant financial challenges, researching bankruptcy requirements can be an important first step. The bankruptcy means test can have an impact on your Chapter 7 case, but the calculation is only one part of the process.
If you’re considering bankruptcy and have questions about the process, contact Audi Law PLLC today. Our team is ready to explain your options, help you file, and provide the guidance you need.