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Do you have to take a means test to file for bankruptcy?

When you are drowning in debt, you are likely looking for the least damaging way out. One of the debt relief options you may be looking at is bankruptcy. The two types you can file for as a regular consumer (as opposed to a business or other entity) are Chapter 7 and Chapter 13.

Chapter 7 eliminates most debts, whereas Chapter 13 involves creating a manageable plan for paying off some of the debt. Both have its pros and cons, and which is best for you depends on your circumstances. If you are considering Chapter 7, one thing to be aware of is that you must meet certain requirements to be eligible to file.

Who can file for Chapter 7?

You must fall under a certain threshold of income to qualify for Chapter 7. The court determines if your income based on the last six months is below the state median for a household of your size. If it is, then you can proceed with the bankruptcy, or go with a shorter Chapter 13. If it is not, then you will have to go through a means test to see if you still qualify or if you can afford Chapter 13 instead. If you are a disabled veteran, you may be exempt from the test. 

What is the means test?

The first part of the means test is the calculation of your income to determine eligibility. If you do not pass that part, the test continues by subtracting certain monthly expenses from your overall income to get your disposable income. The amount of this leftover money decides if you are able to repay some debt through Chapter 13 or if you can file for Chapter 7.

What other options are available?

If you do not want to file for bankruptcy, regardless of your financial standing, consider debt settlement. This entails negotiating with creditors on how much of the debt you will repay so that you both win. It is generally faster and cheaper than filing for bankruptcy.

 

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