Bankruptcy is often described as a financial tool that can eliminate debt and give you a fresh start financially. This sounds great to many people, who may always keep it in the back of their minds as an option. If the debt level that they’re facing gets a bit high, they know this is something they can do to alleviate that pressure.
But is this an option for everyone? Is it a financial tool that anyone can use or that anyone would qualify for?
Income levels and means tests
The truth is that everyone certainly does not qualify, and there are many people who try to use Chapter 7 and are told that they do not pass the means test. In other words, their income level is too high and they have disposable income that they should use to try to pay off their debt. Someone who passes the means test has demonstrated that their income is so low that there’s no way for them to pay the debt off without filing for bankruptcy.
Another thing to remember is simply that you can only file for Chapter 7 so often. If you haven’t done it in the last eight years, then you may qualify. But if you have filed before, you cannot immediately do so again.
One other point to note is that someone who doesn’t qualify for Chapter 7 bankruptcy may still qualify for Chapter 13. This doesn’t eliminate debt in the same way, but it creates a repayment plan. It is sometimes an option for those who do not pass the means test. Be sure you know exactly what steps to take and what options you have if you are considering bankruptcy.