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How the bankruptcy means test determines Chapter 7 eligibility

| Apr 23, 2021 | Blog

When you start accumulating debt and it becomes so sizable that you see no realistic way to pay it off, you may explore your options and consider whether you may be able to get your head above water by filing for bankruptcy. Chapter 7 and Chapter 13 bankruptcies are both personal bankruptcy types. However, there are different processes involved and eligibility requirements associated with each.

A Chapter 7 bankruptcy, or liquidation bankruptcy, is one potential way to start getting a grip on your finances. Yet, not everyone is eligible for it. If you want to move forward with this type of bankruptcy, you must first pass a means test. The means test determines how much, if any, income you have free to put toward your debts after paying for necessities, such as housing.

The first step in the bankruptcy means test

The means test has two parts. However, if you pass the first part, you do not have to worry about the second. The first part of the means test asks you to see how your household income compares against the median household income in New Jersey. If your figure is the lower of the two, you pass the means test.

The second step in the bankruptcy means test

If your figure is the higher of the two but you still want to pursue a Chapter 7 filing, you need to take part two of the means test. This involves gathering documents relating to your income and expenses to come up with a figure for how much disposable income you have. This figure then determines whether you may file for Chapter 7 bankruptcy.

If you fail the means test but do not want to file for Chapter 13, you may wait six months and try taking the test again.

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