What Debtors Should Know About the “Means Test”?

Individuals who struggle with their finances often find it difficult to cope with their daily living. As a person with limited cash flow, it might be hard for you to settle your overwhelming debts while maintaining a comfortable lifestyle. However, if you are considering filing for bankruptcy, it’s important that you understand the means test for you to know your filing options.

Determine if You have Enough Finances to Settle Your Debts

People who want to discharge most of their unsecured debts often consider consulting with a Chapter 7 bankruptcy lawyer in Salt Lake City. But before you speak with an experienced lawyer, know if you can pass the means test. As of December 2018, if you earn a median income below $61,044 in the past six months, you’ll pass the means test and can file for Chapter 7 bankruptcy. The median income increases depending on the number of family members. If your median income exceeds the minimum, you’ll need to determine if you can use your excess income to pay off your debts.

To determine your average current monthly income in the past six months, know the total amount you get from all the jobs you have and other financial benefits you receive, and divide the amount by six. If you are receiving Social Security benefits, you don’t need to include it in your current monthly income; however, your state disability insurance may not be exempted.

Many individuals prefer to file for Chapter 7 as it gives them an opportunity to completely wipe out the majority of their outstanding debts in credit card, personal loans, hospital bills, and other consumer debts. Some individuals may find it easy to pass the means test, but it might not be easy for others.

Factors that Result in Failing the Means Test

a pen and calculator on top of a financial statement document

The means test is in place to prevent high-income earners from filing for Chapter 7 bankruptcy. You’ll likely fail the means test if your median income in the past six months is more than $61,044.

The court will not allow you to file for Chapter 7 bankruptcy if you have a substantial amount of disposable income, which you may use to repay your debts. You may also fail the means test if you don’t want to liquidate your other assets like jewelry, a second car, or a second home. Under Chapter 7, the court may allow you to keep your home and other personal properties that you’ll need to earn a living.

Individuals who fail the means test consider retaking the test again after six months. This is worth considering if you have the time and you think that your financial problem is still bearable.

The means test is a way to figure out if you are eligible to file for Chapter 7 bankruptcy. You may file for Chapter 7 if you have a monthly income that’s below the average. You might fail the means test if you have a substantial amount of disposable income or you don’t want to liquidate your other properties.