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What is the bankruptcy means test?

If you, like many others across Tennessee, are facing overwhelming debt, you may be weighing your options in an effort to figure out what might help you get back on your feet. In some cases, you may find that filing for bankruptcy may help you rebuild your finances and regain control over your life in the shortest amount of time, but you may not know much about the process, or what it entails. Nowadays, the majority of personal bankruptcies involve Chapter 7 filings, but only those who pass what is known as the bankruptcy means test can file through this method.

Per Nerdwallet, the bankruptcy means test helps you determine whether you can file for bankruptcy through a Chapter 7, which is for lower-income earners, or if you have too much “disposable income” at hand and should instead consider a Chapter 13 filing. In a Chapter 13 bankruptcy, you must typically pay back at least some part of your outstanding debts, which differs from the typical process followed in a Chapter 7 bankruptcy.

Just how does the means test work? The test compares your household income against the average household income in Tennessee to determine where you stack up. If your income level is lower than Tennessee’s average, you can automatically pass the test and proceed with a Chapter 7 filing. If not, you fail the first part of the means test, but you may still be able to file for Chapter 7 if you can demonstrate a lack of disposal income that makes you unable to pay back debts through a Chapter 13.

Typically, this involves assembling thorough documentation about your monthly income and expenses and using several formulas to determine how much you have left over after paying the essentials. Depending on this calculation, you may or may not then be able to file for a Chapter 7 bankruptcy. If not, you may have other options that can meet your needs.

This information is educational in nature and not a replacement for legal advice.

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