What is the Means Test?

If you’re considering bankruptcy as a relief to debt that you’ve been burdened with for months or even years, you probably have lots of questions about the process and outcome. Maybe you’re worried that you have too much debt or make too much money to qualify. I’m here to answer all your questions and guide you through the process.

Chapter 7

During our first appointment, I’ll take some time to assess your situation so that we both have an accurate picture of your finances. This will guide our decisions as far as which chapter of bankruptcy to file. We’ll discuss your budget and look at alternatives to bankruptcy as well. One of the first and most important things we’ll do is conduct the Means Test. This calculation looks at your debt, income, assets, and living expenses to come up with your disposable income. If you do not have much income left over after taking care of the necessities, you do not have the “means” to pay off your debt in a reasonable amount of time and you pass the test. This means you’re eligible for a Chapter 7 Bankruptcy.

Chapter 7 is what most people think of when they think of bankruptcy: an immediate discharge of most of your debts. This takes care of debts such as medical bills, credit cards, personal loans, and utilities. If you’d like to get out of your auto loan, you can include your car, but if you’d like to keep your car, just continue to make your payments. Back taxes, child support, alimony, and student loans may not be included in your bankruptcy. Having most of your debt wiped out gives you a new start and frees up money to take care of your other expenses as you get back on your feet.

Chapter 13

If you don’t pass the Means Test, don’t worry that you’ll be stuck with your entire debt forever. A Chapter 13 is an effective option that greatly reduces the overall balance that you’ll pay. If you have debt payments that you can’t keep up with, but can make some payments, a Chapter 13 might be the right choice for you. Think of this as a reconfiguration of your debt. The court trustee will look at your debt and income, and you will then be given a repayment plan that is set to reflect your ability to make payments out of your disposable income. If you stick to this plan of lower payments for 3 to 5 years, the remainder of most of your debt will then be discharged. The great thing about a Chapter 13 is that you get to keep your property because you’re still paying for it. For this reason, some people who qualify for a Chapter 7 still choose a Chapter 13.

Call for More Info

Thoughts of having your debt erased or greatly reduced can be such a relief. If you’re tired of the stress and anxiety caused by your debt, just give me a call. I’ll help you decide on the next steps in your financial plan and get you headed toward financial freedom.