If you are struggling to pay back your debts and feel like you have no option but to declare bankruptcy, you may be concerned about the bankruptcy means test. In fact, you may have heard that under new bankruptcy rules, it is not possible for you to declare bankruptcy unless you have a good income. Fortunately, this is not true- while you are more limited in the type of bankruptcy you can declare, the bankruptcy means test will generally not preclude you entirely from getting bankruptcy court relief from your debts.
Chapter 13 and the Bankruptcy Means Test
For a long time, most people who declared bankruptcy declared chapter 7. While some of their home equity and some other assets, such as retirement accounts and inexpensive cars, were protected, these individuals had to turn over the rest of their assets to a trustee. The trustee would then sell those assets and pay the creditors some of what they were owed. After the sale, any unpaid debts that weren't exempt were discharged and creditors couldn't collect anymore. This meant that, with the exception of student loan debt, tax debt, unpaid child support and certain other non-exempt debts, a person who declared bankruptcy got a fresh start.
However, changes to the bankruptcy code instituted a test to limit many people from filing Chapter 7. Under the new rules, only those who either made below the median income in their state or who couldn't possibly afford to pay their bills and still have enough left over to live on, were allowed to declare bankruptcy. These rules included a specific means test to determine whether someone made enough to pay back debt or not. As a result, many people were barred from filing Chapter 7.
Chapter 13, which has no bankruptcy means test, provides an alternative. Almost anyone (with the exception of those who have already filed or who are engaging in behavior considered bankruptcy fraud) can file Chapter 13. When you do file, you don't lose your assets either- instead, you establish a payment plan that the court approves and you follow that plan under the guidance of a trustee, paying back some of what you owe to creditors over a period of three to five years.
Getting Help
If you are concerned about the bankruptcy means test or your eligibility to get relief from your debts through bankruptcy, contact an experienced bankruptcy attorney who can explain the rules and process of filing to you.
