The bankruptcy means test is used to determine if your income is low enough to file a chapter 7 bankruptcy. There is a formula used to prevent high-income earners from filing chapter 7. This does not mean you need to have no income or be completely broke. You can make a decent living and still qualify for the means test. Even high-income earners have an alternative in utilizing a chapter 13 bankruptcy. The key lies in your income to debt ratio.
How Does the Means Test Work?
The means test is used to determine if you have enough money after your expenses to pay back your debt. If you have disposable income, you can use chapter 13 and pay back some of your debts. It uses a formula to deduct monthly expenses from your income to determine a disposable income. The higher disposable income you have, the less chance you will have of qualifying. There is a median monthly income that each state has. Here is Florida's median income based on household size. Only consumer debts will qualify, not business debts. You can use the forms on the US Bankruptcy Court website to try the means test for yourself.
Passing the Means Test
Passing the means test does not automatically qualify you to file chapter 7. The courts will also look into your taxes and review your Schedule I: Your Income and Schedule J: Your Expenses. They want to be sure there is no additional disposable income that could be used to pay your creditors.
If you have passed the means test, the decision to file should be carefully reviewed. Talk to an attorney and review your specific case carefully. Most attorneys offer a free case evaluation. This is a great opportunity to determine if your case fits with the need to file bankruptcy. You can also read Will I Lose Everything if I File Bankruptcy?
What if I Didn't Pass the Means Test?
This doesn't mean bankruptcy isn't an option. You can work with your attorney and a plan for filing chapter 13. This means a portion of your disposable income will be worked into a plan that your assigned trustee approves to pay back your creditors equally. You can also read What Happens if I Can't Make My Chapter 13 Plan Payments?
It is always best to consult an attorney to be sure you are taking the best steps for your case. You will find that most attorneys offer a free case evaluation. Be ready with any questions you may have, your income, and your debts. Bankruptcy isn't always the best answer so be sure to get the best information you can before deciding.