If getting a fresh financial start sounds like a dream for your insurmountable debt, chapter 7 bankruptcy could make it a reality.
Qualifying typically means passing the bankruptcy means test. It determines if your income is low enough to file for chapter 7 and is one of the biggest roadblocks for those seriously in need of debt relief.
Understanding the means test
The test evaluates your financial situation to determine if you qualify for chapter 7 bankruptcy by comparing your income to the median income of a similar household in your state. If your income is below the median, you pass automatically. If not, further calculations are necessary.
Here is a step-by-step example of this process:
- Calculate current monthly income: Gather your income documentation going back six months, including wages, business income, rental income and other sources.
- Determine your annual income: Multiply your monthly income by 12 and compare this figure to Massachusetts’s median income for your sized household.
- Evaluate your expenses: List all allowable expenses, such as housing, utilities, food, transportation and priority debts like child support.
- Calculate disposable income: Subtract your allowable expenses per Massachusetts law from your monthly income.
If your disposable income is below the state threshold, you pass the test.
Making the most of allowable expenses
Certain expenses can substantially reduce your disposable income, helping you pass the test and move on to the next stage of the chapter 7 process. These include:
- Housing expenses such as mortgage or rent and electricity bills
- Out-of-pocket medical costs and health insurance premiums
- Child-related expenses like daycare or healthcare
Someone with a firm grasp of bankruptcy under state laws can help you qualify for chapter 7 and guide you through the bankruptcy process.
