When debt becomes unmanageable, filing for Chapter 7 bankruptcy can offer considerable relief. Through this legal process, individuals can discharge many unsecured debts, such as credit card and medical bills. However, to qualify for this form of debt relief, filers must first pass a means test. If you’re considering this option, here’s what you can expect from the means test and how to move forward depending on the results. 

What Does the Means Test Involve? 

Usually performed with the help of a bankruptcy attorney, the means test is a comprehensive review of your earnings to determine your household income level. If you recently lost a job or got a new one, adjustments can be made to accurately reflect your income. 

Next, your income will be compared with the state’s median income level for a household of your size. If your earnings are lower than the median income level, you're eligible to file for Chapter 7 bankruptcy. If it’s higher, your attorney will need to take a closer look at your financial situation to see if you still qualify. 

What Happens If My Income Doesn’t Pass the Means Test? 

Earning more than the median income level doesn’t automatically disqualify you from Chapter 7 bankruptcy. However, you and your attorney will need to document all your expenses over the past six months to show that you’re unable to repay debts with your current income. If your expenses aren’t significant enough to pass the means test, you won’t have the option to appeal the decision and won't be eligible for Chapter 7 bankruptcy.

In these situations, you may still be eligible for Chapter 13 bankruptcy. Unlike Chapter 7, Chapter 13 bankruptcy doesn't discharge debts. Instead, your debts will be restructured according to your financial situation to form a new repayment plan. Repayment can last anywhere between three and five years, at which point remaining balances may be eligible for discharge.  

If you’re curious about your Chapter 7 eligibility in Honolulu, HI, consult with Greg Dunn, Bankruptcy and Debt Relief Attorney. Assisting clients for more than 25 years, this experienced bankruptcy attorney will streamline the means test and simplify the filing process in a way that makes sense for your financial situation. If you don’t qualify for Chapter 7, he'll help you explore other debt relief options, such as filing for Chapter 13. Visit this Oahu lawyer online to learn more about these services, or call (808) 524-4529 to schedule a free consultation.