People in Tennessee that are having serious problems managing their debt may decide to file for personal bankruptcy. Chapter 7 bankruptcy may wipe out most of a debtor’s consumer debts so that they can get a fresh start. However, the bankruptcy court will only approve a Chapter 7 filing if a debtor can pass the bankruptcy means test.
First step
The good news is that most people who file for Chapter 7 bankruptcy pass the means test in one simple step. You automatically pass the means test if your income is below the median income for your state. However, there are a couple of caveats:
• You must be able to show that your income was below the state median for the past six months.
• There must be no indication that your income is about to increase significantly.
If your income is above the state median, you may still qualify for Chapter 7 bankruptcy relief if you can pass the second step of the means test.
Second step
The second step of the bankruptcy means test is proving that you don’t have enough discretionary income to pay off your debts. Discretionary income is any money that you don’t need for basic living expenses such as rent, mortgage, food, medical bills, utilities, and clothing. Your grocery bills, your children’s school fees, and even some entertainment expenses can be included as allowable expenses.
The bankruptcy trustee will look at the discretionary income that you have leftover after all of your allowable expenses are accounted for. If there is little to no discretionary income left, you pass the means test and can file for bankruptcy.
What if you can’t pass the means test?
There are other options for debtors that are unable to pass the bankruptcy means test. For example, if most of your debt is from a business you own, you can file bankruptcy on behalf of your business instead of filing for personal bankruptcy. You may also qualify for Chapter 13 bankruptcy, which is a debt restructuring rather than a liquidation.