Bankruptcy Means Test Meaning
What is the bankruptcy means test meaning? What even is the bankruptcy means test? Many considering bankruptcy and other debt relief options want to know. Stated simply, the bankruptcy means test is a financial evaluation of whether you qualify for certain bankruptcy protection. Passing the bankruptcy means test typically qualifies a filer for Chapter 7 bankruptcy. Chapter 7 bankruptcy is a form of bankruptcy filing resulting in the discharge, or elimination, of the filer’s debt. None of the debt normally needs to be repaid in a Chapter 7 bankruptcy.
Qualifying for Chapter 7 bankruptcy requires the filer to pass the bankruptcy means test. This, then, is the primary bankruptcy means test meaning. To “pass” the bankruptcy means test, the filer must demonstrate eligibility to file for Chapter 7 bankruptcy. What this means is that an individual or couple filing for Chapter 7 bankruptcy must prove eligibility for a Chapter 7 filing. To be eligible for filing Chapter 7 bankruptcy, filers must show, essentially, their living expenses exceed their income. Put another way, they owe more in living expenses than income earned. This recent news article clarifies many of the bankruptcy means tests basics.
When bankruptcy filers establish their living expenses exceed their income, Chapter 7 bankruptcy law allows their debts to be forgiven, or eliminated. The bankruptcy means test meaning here is that if an individual cannot afford basic living expenses, debt on top of that is incapable of being repaid. That is the purpose of Chapter 7 bankruptcy, to eliminate debt that cannot be repaid. The bankruptcy means test is the tool to test whether this is true for those filing for Chapter 7 bankruptcy.
Not qualifying for, or passing, the bankruptcy means test does not mean you cannot qualify for bankruptcy protection. But the bankruptcy means test meaning does dictate whether you qualify for Chapter 7 bankruptcy. Not qualifying for Chapter 7 bankruptcy is not necessarily bad. Sometimes other forms of bankruptcy filing, such as Chapter 13, bankruptcy, are a better bet for the filer. Every individual and family are different.
Though the concept is simple, the bankruptcy means test is one of the more complicated areas of bankruptcy law. Tread carefully here! There are numerous nooks, crannies and niches to the nuance of the means test. This is particularly so if your finances are not a natural fit for the means test. Perhaps, then, the best way to understand the bankruptcy means test meaning is to meet with a bankruptcy professional.