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What is the bankruptcy means test?

On Behalf of | May 18, 2021 | Bankruptcy

The bankruptcy means test is used to determine when a struggling consumer seeking to file for bankruptcy qualify for personal bankruptcy protection. The means test is used to help determine if the consumer struggling with overwhelming debt qualifies for Chapter 7 bankruptcy. If they do not, other personal bankruptcy protection options may be available.

Chapter 7 bankruptcy means test

The means test evaluates the filing party’s income for six months before they filed for bankruptcy. The filing party’s income is then compared to the state’s median family income. If the filing party’s income falls at or below the state’s median family income, the filing party qualifies for bankruptcy protection.

Several different types of income are considered including:

  • Wages, salary, tips, bonuses, overtime and commissions;
  • Gross income from a business, profession or farm;
  • Interest, dividends and royalties;
  • Rental and real property income;
  • Regular child support or spousal support;
  • Unemployment compensation;
  • Pension and retirement income;
  • Workers’ compensation;
  • Annuity payments; and
  • State disability insurance

Income that is not considered includes tax refunds, Social Security retirement benefits, Social Security disability insurance, Supplemental Security Income and Temporary Assistance for Needy Families (TANF). If the filing party does not qualify for bankruptcy based on the means test, they can either explain their special circumstances or may wish to file for Chapter 13 personal bankruptcy protection instead.

It is important to know that there are different types of personal bankruptcy protection that can help filing parties in different situations whether they qualify for Chapter 7 bankruptcy or not. In common, personal bankruptcy protection can help struggling consumers enjoy debt relief.

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