Am I Eligible To File Bankruptcy?

When one is looking into filing for bankruptcy, the term “means test” will undoubtedly come up frequently. However, many of the articles on the web often skim past what the means test is and why it matters.

Simply put, the means test is what determines whether one can file for Chapter 7 bankruptcy. Those who fail this test or who do not want to forfeit certain assets, like antique cars, can choose to file Chapter 13 bankruptcy, which means debts will be restructured, not eliminated.

One’s income and expense information goes onto the means test forms (i.e., the 122A Forms or the 122C Forms). This includes current monthly income, family size and expenses. This calculation determines whether one has enough income to pay off debts. While this may sound scary, the majority of people filing for bankruptcy pass the test.

The First Test – Income

This initial assessment in determining eligibility involves a meticulous evaluation of the filer’s household income. This involves a thorough review of income documentation over the past six months, accounting for any fluctuations or significant changes. For instance, if the filer has recently gained employment or experienced a layoff, these adjustments factor into the income analysis.

The income threshold is set against North Carolina’s median income, as determined by the latest census data. If the filer’s income falls below this median, they successfully pass this test, allowing them to proceed with further evaluations or applications.

The Second Test – Expenses

In the second phase of evaluation, the focus shifts to a detailed analysis of the filer’s expenses, particularly for those whose income exceeds the median threshold. This involves compiling a comprehensive record of all expenses over the previous six months. The list of allowable expenses, as guided by the IRS, includes essential costs such as medical bills, clothing, groceries and rent.

The goal is to determine the filer’s disposable income, which is the remaining income after subtracting these necessary expenses from their total income. This disposable income is crucial, as it indicates the amount available to address outstanding debts. If this amount remains sufficiently low, the filer qualifies to file for Chapter 7 bankruptcy.

Accurately calculating these expenses is vital, as errors can lead to the dismissal of the case. Given the complexity and the mathematical precision required, it is strongly advised that individuals seek the expertise of a bankruptcy attorney to navigate this process effectively.