Filing for bankruptcy involves a few different components. A common step at the beginning of the process involves taking a means test. Here’s a closer look at what filers need to know about the assessment and its impact on bankruptcy law. 

What Is a Means Test?

There are two main types of personal bankruptcy: Chapter 7 and Chapter 13. The former allows qualifying unsecured debt, like credit cards, to be completely discharged, which is completed within a matter of months. However, Chapter 7 bankruptcy does have certain economic limitations. To determine if a filer qualifies, they must take the means test. 

The goal is to determine the financial situation by evaluating household expenses, income, and the number of dependents. Such an approach provides a more in-depth review of the circumstances.

How Do You Take the Test?

The means test has two parts. The first section focuses on income. If the household income is below the state median—$54,900 in Alabama—then that satisfies the court’s requirement. As a result, the second part isn’t needed, and the bankruptcy attorney can file the first part of the means test with the petition on its own. 

If the total is above the average, it’s still possible to qualify for Chapter 7. For that reason, the second part of the means test needs completing. This section pulls expenses into the calculation and subtracts them from the home’s incoming funds. If the remaining amount is low enough, then the court may still approve it. 

What Happens if the Criteria Aren't Met?

Unlike Chapter 7, Chapter 13 bankruptcy doesn’t have low income limits. As such, many people choose to file for it instead after not meeting the requirements of the means test. Instead of full debt discharge, Chapter 13 involves restructuring the debts into a single repayment process spanning three to five years. Any remaining account balances at the end of the time frame are discharged. As a result, filers are still able to get on top of debt and move forward. 

If you’re battling mounting debt, reach out to Ray T. Kennington, Attorney At Law, in Ozark, AL, to review your options. The local bankruptcy attorney provides personalized guidance on obtaining debt relief through Chapter 7 and Chapter 13 filings, creditor negotiations, and debt management. Learn more about the firm’s bankruptcy law services online, and request a consultation at (334) 445-1200.