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What is the means test and how does it work?

On Behalf of | Jun 5, 2022 | Bankruptcy

Filing for bankruptcy is something that some Massachusetts residents might want to do if they’re heavily in debt. If you choose to file, you might have to first take the means test. It’s important to know what this is and how it works.

What is the means test?

The means test is used when a person wants to file for bankruptcy to determine which type they can file. The test can show whether a person earns too high an income to qualify for Chapter 7 bankruptcy and should file for Chapter 13 instead. It examines their financial situation and whether they are able to qualify for assistance. With bankruptcy, if the means test shows that a person could not pay their debt due to their finances, they would qualify for Chapter 7 instead of Chapter 13 bankruptcy.

How does the means test work?

The means test works by determining whether a person has enough income that allows them to pay back their debt. The first part of the test looks at the individual’s total household income and whether they fall under the state’s median range. Finances are based on the most recent six months. If a person passes the means test, it means they qualify to file for Chapter 7 bankruptcy.

The second part of the means test explores the person’s disposable income and their expenses for the past six months. Whatever money remains after taking those things into account could go toward paying back debt. If the person’s disposable income is still under a certain amount, it means they still qualify to file for Chapter 7 versus Chapter 13 bankruptcy.

If a person fails the means test, it means they cannot file for Chapter 7 bankruptcy. However, in that situation, they could wait a while to file if they prefer not to have to file Chapter 13.