What Is the Means Test?

The Means Test

The Means Test

Filing bankruptcy can be a frightening, frustrating thing for consumers overladen with debt. However, the fact remains that this is often a necessity for many people, whether they are suffering from credit card debt, student loan debt, bad mortgages or some other form of debt.

Once debt piles up to a certain amount, bankruptcy is the only option, unfortunately. Of course, filing bankruptcy is not a simple process, particularly with the rules handed down by the US government in 2005.

One of the most confusing things is the means test. What is this test? How does it apply to you?

The means test is an essential part of your filing – even if you are exempt from the test, itself, the paperwork must still be filled out and sent in with your other paperwork. This test is one of the ways the government determines whether you are attempting to abuse the system or not.

First, you will need to collect all of your paystubs for the previous six-month period. You will also have to show proof of any other form of income that you might have earned during this time.

For small business owners and entrepreneurs, you will need to determine your business expenses for this same period, as well as providing your gross income for the past six months.

You must establish an average of your monthly income, which is then multiplied by 12 to arrive at an average annual income figure. This figure is compared to the median income for the average family within your state.

However, you will also find that your spouse’s income must be accounted for on the test, even if he or she is not part of the filing.

The immediate result of the means test is to help determine where you fall income-wise in relation to other families within your state. If you fall above the median income level, then there is a chance that you will be forced to file Chapter 13, rather than Chapter 7.

The means test is a complicated matter and even if you pass it, you might not be approved to file Chapter 7. Your best option is to have a qualified attorney at your side.

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