Friday, July 22, 2016

What Is The Means Test In Bankruptcy And How Does It Impact Me?

In 2005 banks and other lenders lobbied Congress in the hopes of having different bankruptcy laws written. Unfortunately Congress listened and the entire bankruptcy structure in place was overhauled. One of the most significant changes to the bankruptcy system was to implement a complex mathematical formula into the first step required for filing a case. Distressed borrowers were no longer free to decide if they wanted to file a Chapter 7 case or a Chapter 13 but instead had to put their finances through a legal formula that fails to take into account certain personal issues a borrower faces. That test is called the means test and it has a big impact on what type of bankruptcy case you are eligible to file.

The means test requires a potential bankruptcy filer to enter data about their debts and their income. Here’s the short story on how the means test will impact you:

        All of your income has to be accounted for when performing the test and this will include any bonus or overtime pay you have recently received.
        Your secured debt is factored in to the computation to come up with a figure that compares what you bring in versus what you pay out in secured debts each month.
        The figure that results from the test determines if you have enough disposable income left over after paying all of your secured debts to pay any portion of your hard earned money to your unsecured debts each month. If you do have money left over that can go towards credit cards or other unsecured debts like signature loans or medical bills you will be required to file a Chapter 13 case rather than a Chapter 7.

Because of the ability to discharge unsecured debt in its entirety in a Chapter 7, that is the preferred type of case for most people who file bankruptcy. But a Chapter 13 has its benefits as well and you should not give up on the idea that bankruptcy can help you if the means test reveals you are only able to file a Chapter 13. It might sound discouraging to have to repay even a small amount of unsecured debt, but being able to reorganize your monthly obligations in such a way that allows you a little breathing room is a huge factor to consider. If you are having a hard time keeping current on your bills, call our office for help. We will walk you through the steps and explain the difficult means test computation to you in a way that makes sense.

For more information about the means test and how it impacts your case, call us today or reach us online at We will help by coming up with solutions that work for you and have multiple locations for more convenient one on one office visits.

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