If you are struggling with debt, bankruptcy may be the most effective way to get rid of them and get a fresh financial start. If you want to eliminate your debts quickly and don’t mind having to sell some of your assets in the process, Chapter 7 bankruptcy may be your ideal choice.
Also known as “straight bankruptcy,” Chapter 7 is an excellent solution for low-income filers. However, this option is not available to everyone. Before filing for this type of bankruptcy, you must qualify through a “means test.”
However, if you fail this test, you may still have options to regain control of your finances and your life. Read on if you want to find out all the details about the means test and what you can do if you cannot pass it.
What is the means test?
The means test is a method used to determine if someone qualifies for Chapter 7 bankruptcy. The purpose of this test is to prevent high earners from being able to get rid of their debts through this alternative.
The test will compare your income and expenses for the last six months to the state median for households similar to yours to determine if you are eligible for Chapter 7 bankruptcy.
If your disposable income for the last six months is below the state median, you won’t have to take the means test and will automatically qualify.
Deduction of living expenses
However, if your income is above the median, you still could pass the test. The next step is to deduct your living expenses. Once you subtract these items, the remainder will be considered your disposable income. Some of the expenses assessed by the means test include:
- Food expenses.
- Clothing for you and your family.
- Childcare expenses.
- Personal or family vacations.
- Mortgage or rent.
- Healthcare expenses.
- Education costs for your children. (Up to age 18)
Of course, if your disposable income is still above the median after deducting your living costs, you will fail the means test and have to opt for other debt relief solutions.
What if you don’t pass the test?
Have you failed the means test? Don’t worry; it’s not the end of the world. Here are some alternatives you may want to consider:
Check your means test figures: You might have miscalculated some of the figures in your means test. Double-check in case you made an error. Consulting with a Los Angeles bankruptcy attorney can help you catch mistakes that went unnoticed at first.
Wait: If you were recently laid off, your income for the last six months might be preventing you from qualifying. In this case, waiting may be your best bet. If you cannot find another solution, it will be a matter of time before you can qualify.
Chapter 13 Bankruptcy: If you believe that waiting will not help you pass the means test, you may want to consider Chapter 13 bankruptcy instead. This option will allow you to get rid of your debts through a 3-to-5-year repayment plan. Also, unlike Chapter 7, you are much less likely to lose any of your assets in the process.
Still have questions? Talk to an attorney.
Bankruptcy can be a complex process, but working with an attorney can make it much more manageable. The attorney will evaluate your financial situation thoroughly to help you determine the best course of action to get rid of your debts.
Most Los Angeles bankruptcy attorneys, such as KT Bankruptcy Lawyer, offer completely free consultations. You are free to contact them if you have further questions about the means test or the overall process; you have nothing to lose!