In order to qualify for Chapter 7 bankruptcy relief, you must pass something called the means test. The means test looks at your income and expenses to determine if you can repay a certain portion of your unsecured debts to your creditors. If you can, then you don't qualify for Chapter 7 bankruptcy.
If you want to file for bankruptcy but can’t pass the Chapter 7 means test, you might consider:
- reviewing your means test figures to make sure there are no mistakes
- delaying your filing if it will allow you to pass the means test, or
- filing for Chapter 13 bankruptcy.
To learn more about the means test, see our Means Test in Chapter 7 topic area.
Review Your Means Test Figures Again
The means test is probably the most complicated form debtors must complete when filing for Chapter 7 bankruptcy. This means that mistakes are common. If you failed the means test the first time you completed the form, review it again to make sure you did not make a mistake.
Some of the most common errors that can lead to failing the means test include:
- overestimating your income
- underestimating or missing deductions you are allowed to take, and
- using the wrong household size.
Delay Filing Your Case If It Will Help You Pass the Means Test
When determining whether you qualify for Chapter 7 bankruptcy, the means test looks at your average income for the six months preceding your filing date. This means that it may not be the most accurate reflection of your current circumstances.
If you recently received a pay cut or otherwise experienced a decrease in income, simply waiting a few months to file your case can lower your average income on the means test enough to automatically qualify you for Chapter 7 bankruptcy.
Consider Filing for Chapter 13 Bankruptcy
If you can’t pass the Chapter 7 bankruptcy means test, consider filing for Chapter 13 bankruptcy instead. In Chapter 13 bankruptcy, you propose a plan to pay back a portion of your debts over a three to five-year period. How much you must repay depends on your income, expenses, and amount of nonexempt property.
But most debtors end up paying only pennies on the dollar towards their nonpriority unsecured debts such as credit cards and medical bills. As a result, filing for Chapter 13 bankruptcy may still be in your best interest even if you are not eligible to file a Chapter 7.
To learn more about how Chapter 13 bankruptcy works, see our topic area on Chapter 13 Bankruptcy.