How the bankruptcy means test determines Chapter 7 eligibility

 Posted on August 12, 2022 in Chapter 7 Bankruptcy

For many Maryland consumers, filing for bankruptcy means a chance at a fresh start. Though not necessarily appropriate in all situations, filing for bankruptcy may help you get a better grip on your finances so that you are able to avoid falling into deep debt again in the future. If you decide to file for bankruptcy, you are likely to do so through either a Chapter 7 or a Chapter 13 filing. However, if you wish to file for Chapter 7, you first have to prove eligibility to do so.

According to NerdWallet, you must take and pass a means test to move forward with filing for Chapter 7. The means test has two parts. However, if you pass the first part with ease, you do not need to worry about the second part.

The first part of the means test

The first step in the bankruptcy means test has you compare your own household income from the last six months against the median household income in Maryland. If yours is the lower amount, you automatically pass the means test and qualify for Chapter 7. If you do not pass the means test in its first section, you may move on to the second step.

The second part of the means test

The second part of the means test is a bit more complex. This step involves gathering comprehensive documentation about how much you bring in each month versus how much you have to pay out. This helps determine how much "disposable income" you have to put toward paying off your debts. It also helps determine if you may move forward with a Chapter 7 filing or should explore other options.

Most people who attempt to pass the bankruptcy means test do so with relative ease.