Declaring bankruptcy is beneficial because it can protect you from lawsuits and end numerous calls and letters from creditors. However, the system’s purpose is to help people sinking into high debt. Thus, to filter those who may want to take advantage of it when they can afford to pay debts, the courts that handle bankruptcy subject applicants to a means test, particularly when filing Chapter 7 bankruptcy, to determine if they are eligible.
This guide discusses what you need to know about this test.
What is a means test?
The means test compares an applicant’s income for the past six months with their debt. The debtor will fill out a form, providing information about their monthly income, including:
- Wages, benefits, tips and overtime
- Spousal support
- Self-employment income
- Funds from regular expenses, such as child support
- Workers’ compensation
- Unemployment benefits
- Pensions benefits
Most of this information can be found in your personal records, such as your tax returns.
How do you pass the means test?
After gathering relevant monthly information, multiply it by 12 to get an annual figure. You will then compare it with North Carolina’s median income. If your income is less than the median family income, you have passed the test in the first stage.
If not, you can move to the second step. You will determine your eligible monthly expenses (costs essential for living) and subtract them from your monthly income calculated in step one. If the disposable income is low enough to pay your debts, you may pass the test.
It’s crucial to pass the means test if you want to file for Chapter 7 bankruptcy, and it’s not always easy to understand the rules. Experienced legal guidance can help.