The means test is one of several factors used to assess your eligibility for Chapter 7 bankruptcy. It evaluates your financial situation by comparing your income to the median income of a similarly-sized household in your state. The test aims to ensure that only individuals with genuine financial difficulties can file for Chapter 7 bankruptcy, which discharges most of your debts without the need for a repayment plan.
This test involves two main steps:
Comparing your income: First, calculate your average monthly income for the six months preceding your bankruptcy filing. Then, compare it to your state's median income for a household of your size. If your income is below the median, you generally qualify for Chapter 7 bankruptcy.
Analyzing your disposable income: If your income is above the median, you need to calculate your disposable income. This step involves deducting certain allowed expenses (e.g., housing, transportation, taxes) from your income. If your disposable income is below a specific threshold, you may still qualify for Chapter 7 bankruptcy. Otherwise, you may need to consider filing for Chapter 13 bankruptcy, which involves a repayment plan.