Means Test Explained
A few years ago, when Congress changed the United States’ bankruptcy laws, they introduced a new requirement that is known as the “means test”.  The means test was created to discourage people from filing for bankruptcy just to avoid paying back debts that they owed to creditors.  It was also created to get people to deal with their creditors instead of simply practicing avoidance.  The means test also plays an important role in determining which type of bankruptcy a consumer is eligible for.

Who is required to take the Means Test?
All people who plan to file for Chapter 7 or Chapter 13 Bankruptcy must take and pass the means test.  This is a mandatory pre-filing requirement.  The means test is simple and it works as follows.  First, the income a person has earned 6 months prior to filing for bankruptcy is totaled.  The total income is then averaged.  The average income the person earned is then compared to the state’s median income.

Means Test & Chapter 7
In order to be eligible for Chapter 7 Bankruptcy, a person’s average income must be less than the state’s median income.  For example, if the state’s median income is $43,000 and a person’s average pre-bankruptcy income is $40,000, he/she would be eligible for Chapter 7.

Means Test & Chapter 13
In order to be eligible for Chapter 13 Bankruptcy, a person’s average income must be greater than the state’s median income.  Additionally, people must not have more than $250,000 in unsecured debt or $750,000 in secured debt to meet the requirements for Chapter 13.

If you have questions about the means test and would like to receive reliable information, feel free to contact the knowledgeable staff at The Prescott Bankruptcy Law Firm today!