Bankruptcy Means Test Explained
Posted on Oct 7, 2009 12:55pm PDT
In the United States, before people can file for consumer bankruptcy, they must complete a means test. Prior to October 2005, this test was not a bankruptcy filing requirement. However, after that time period, it became a pre-requisite for individuals who planned to file for Chapter 7 and Chapter 13. The purpose of the means test is to determine whether or not individuals are eligible for bankruptcy.
Generally speaking, when people are getting ready to file for Chapter 7 or 13, the U.S. Bankruptcy Courts will look at their average income for the 6 months prior to people filing their bankruptcy petitions. If peoples' average income falls below their states' median income, they will be able to file for Chapter 7. Chapter 7 is a type of bankruptcy that allows people to have their debts discharged or eliminated. If peoples' average income is above their states' median income, they may be able to file for Chapter 13. Chapter 13 is a type of bankruptcy that allows people to repay the debt they owe to creditors over a 3 - 5 year time span.
People will also be subjected to an additional step. During this step, the court will subtract their living expenses from their total average income. The court will then multiply this figure by 60. This new figure will represent the amount of money people have available to repay their debt. If this amount exceeds $10,000, they may have to file for Chapter 13 instead of Chapter 7.
If you are considering filing for bankruptcy and you have questions about the prerequisites or the means test,
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