Every one of us is aware of the phrase “means tested.” It’s used to describe some of the government programs and benefits, but it is important to understand What is the means test ? The short answer to this is “means tested” programs are only available to those whose incomes are judged sufficiently low. In other words, a wealthy person wouldn’t be competent to access means-tested benefits.
Understanding “what is the means test”
the bankruptcy means test is designed to check whether your income is low enough for you to file for Chapter 7 bankruptcy. It’s a formula derived to keep high wage earners from filing for Chapter 7 bankruptcy. High-income filers who fail the means test can use Chapter 13 bankruptcy to repay a portion of their debts, but won’t be able to access benefits of Chapter 7 bankruptcy to wipe out their debts altogether.
However, having to take the Chapter 7 means test doesn’t signify that you must be penniless to use Chapter 7 of bankruptcy. You can earn a significant amount monthly income and still qualify for Chapter 7 bankruptcy if you have a lot more of expenses, like high mortgage and car loan payments, taxes, and other expenses.
Working of chapter 7 means test:
The means test was designed to limit the use of Chapter 7 bankruptcy to those who are not able to pay their debts. It does this by deducting specific monthly expenses from your “current monthly income” to determine your monthly “disposable income.” The higher your disposable income, the more likely you won’t be given access to use Chapter 7 bankruptcy. Instead of this, you’re expected to use your disposable amount of income to repay creditors.
Only bankruptcy filers with primarily consumer debts and not business debt, require to take the means test. The first step of the means test is to determine whether your income is more or less than the median that is defined in your state. If you make your income more than the median, you must analyse whether you would have enough left over, after subtracting certain expenses, to repay some of your debt amount.
The first step to determine this is very simple. If your current monthly income is less than the median income for a household of your size in your state, you pass that phase. You’re done wholly and You do not need to complete the rest of the means test. You can go for filing Chapter 7. Median income levels differ by state and household size. Also, every county and metropolitan region have different allowed amounts for categories of expenses, like necessities, housing, and transportation.