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Bankruptcy and the Means Test: What it is and How it Works

Bankruptcy and the Means Test: What it is and How it Works

Passing the bankruptcy means test is essential when filing for Chapter 7 bankruptcy. Not passing a means test could block you from using Chapter 7 bankruptcy to escape debt. Finding out what the means test is and how this process works may help you better navigate these steps. Feel free to ask a Chattanooga bankruptcy attorney for assistance.

What is the Means Test?

The bankruptcy means test is designed to determine whether someone really needs to file for bankruptcy. In other words, courts want to see whether someone can repay creditors without filing for bankruptcy. This is extremely important because this test could determine whether you can file for bankruptcy or not.

When a means test for bankruptcy is failed, you could be denied Chapter 7 bankruptcy. However, this may not always completely block you from filing for bankruptcy. Depending on the situation, the court may allow you to convert to Chapter 13 bankruptcy or Chapter 11 bankruptcy.

These come with their own requirements. Consider consulting with a bankruptcy lawyer to learn more. You can find bankruptcy means test forms on the Administrative Office of the United States Courts website. The forms you need depend on the type of bankruptcy you are filing.

The Official Form 122A-2 is for Chapter 7 Means Test Calculation. Whereas Official Form 122A-1 is the Chapter 7 Statement of Your Current Monthly Income. For Chapter 13 bankruptcy, the Official Form 122C-2 is for Chapter 12 Calculation of Your Disposable Income. These forms will help calculate your income and other financial means to start the means test process.

In some cases, you will be able to provide your income information directly through these forms. Other information might be requested through the Internal Revenue Service (IRS) and Census Bureau.

How the Means Test Works

You might be wondering what to expect from the means test. When it comes to how means testing works, the process involves two phases where you can pass the means test. The first phase determines whether your income is below the Chapter 7 limit.

If income is below this amount for the previous six months and is expected to stay this way in the future, then this test is passed. When this test is not passed, you will go to phase two. Phase two examines money you spent on essentials in life like:

  • Food

  • Shelter

  • Clothes

  • Medical bills

Non-essentials are deemed discretionary or disposable income. This describes money spent on anything that you did not need to live. These portions of income for non-essentials will be used for debt. If your disposable income in this category is low enough, then you pass the means test in this phase.

Call Tom Bible Law for Legal Help

You may not have to struggle with the bankruptcy process alone. Do not hesitate to call us today at Tom Bible Law by dialing (423) 424-3116 for a consultation about your financial situation. Our dedicated team of Tennessee bankruptcy lawyers is prepared to work with you to navigate the complex process of bankruptcy. We serve clients throughout the Tennessee cities of Chattanooga and Tullahoma.

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