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How does the bankruptcy means test work?

If money is tight and you're falling behind on debts, then you may be considering bankruptcy. Before you can be approved, you need to take a bankruptcy means test to make sure you'll be able to apply.

What is the bankruptcy means test?

The bankruptcy means test determines if you can enter into Chapter 7 bankruptcy. The test itself looks at your income, family size and expenses to determine if you have enough disposable income to repay the debts you owe. Most people who take this test do pass easily. If you don't qualify, then there are other kinds of bankruptcy you can apply for, like Chapter 13 bankruptcy.

What is the first thing the test looks at?

The first part of the test looks at your household income. If it's below the state's median income, then you pass the first section and can file for Chapter 7 bankruptcy. You'll want to collect all income documents from the last six months. Remember, you can factor in things like time spend unemployed.

Can expenses be used to help determine my disposable income and overall means of providing for myself?

Expenses can be used and are helpful in determining your disposable income. This income can be put toward paying off debt, so if you can show that you have little to no disposable income, you're more likely to be approved for Chapter 7 bankruptcy. If you don't qualify, don't worry. There are several other kinds of bankruptcy that your attorney can help you file for, whether you choose to go with Chapter 13 or another form.

Source: Nerd Wallet, "The Bankruptcy Means Test: What It Is, Why It Matters," Sean Pyles, July 14, 2016

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