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What is a means test?

On Behalf of | Sep 17, 2021 | Personal Bankruptcy

Individuals who find themselves over their heads with debt may find that Chapter 7 bankruptcy is one way to handle their money issues; however, before the process can begin, they must pass a means test. Credit Karma notes that this test measures whether someone qualifies for Chapter 7 bankruptcy or if they must opt for Chapter 13 instead.

Understanding the function and importance of a means test may help those filing understand the requirements and simplify the processing of the test itself.

The purpose of a means test

Before individuals can file for Chapter 7, they must prove that their income is lower than the median income of their state of residence. The test may ask several questions referring to debt, including:

  • Size of the household
  • Gross income
  • The total amount of debt

Individuals may begin the process by filling out several forms, including a monthly income statement.

Filing jointly

Just as they would file jointly for income taxes, married couples must fill out the forms related to the means test together. The form requires information about joint income and the total amount of debt before a couple qualifies for Chapter 7 bankruptcy. Those separated from their spouses may have to fill out additional forms.

Passing the means test

Those who fail to pass the means test still have other options. They may either file additional forms to continue the pursuit of this type of bankruptcy or consider Chapter 13, which offers a repayment plan, instead.

The means test may also ask for information about the applicant’s dependents and costs related to their home and vehicles. Those filing may want to refer to previous income tax forms to ensure they fill out the forms correctly.

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