If you are considering filing for bankruptcy, you have probably heard of the means test. The means test determines whether you are eligible to file for Chapter 7 bankruptcy.
The test looks at your income, family size, and expenses to determine whether you qualify for Chapter 7. If you do not qualify, Chapter 13 bankruptcy or another debt relief option may be better suited to your situation.
The first part of the means test looks at whether your household income falls below the median income in Minnesota. For the test, you only need to look at your income over the past six months.
If your household income is below the median, you qualify for Chapter 7 bankruptcy, unless you have made a recent bankruptcy filing. If your income does not fall below the median, you still have a chance for Chapter 7 eligibility.
Expenses and disposable income
The means test may also consider allowable expenses. Allowable expenses are based on local and national standards used by the IRS. Eligible expenses include food, clothing, and other costs. What’s left after accounting for allowable expenses is your disposable income. If your disposable income is low enough, you may still qualify for Chapter 7.
What happens if you fail the means test?
If you fail the means test, you do not qualify for Chapter 7 bankruptcy. There is no appeals process. However, another form of bankruptcy may still be an option. It is also important to remember that because the means test only looks at a six-month snapshot of time, you may take the test in another six months if you decide not to file for another form of bankruptcy.