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What is the means test?

On Behalf of | Aug 27, 2021 | Bankruptcy |

A bankruptcy means test is used to determine who is eligible for Chapter 7 bankruptcy, which will help erase debts. The test takes several factors into account, such as family size, income, and expenses, to determine whether an individual has enough disposable funds to pay for their debts. Most people who are filing for Chapter 7 pass the means test. If you’re a New Mexico resident and you want to know about the qualifications for bankruptcy, you may find the following information helpful.

How the test works

The means test will let you know if you can file for Chapter 7 bankruptcy or if you should retain some of your larger assets and file for Chapter 13 instead. There are two parts to the test, and both are designed to see whether you have disposable income that you can use to satisfy your debts. In most cases, your bankruptcy attorney will fill out the necessary forms and give them to the court along with any additional papers that must be filed.

The means test is reserved for those who mainly have consumer debt, such as medical bills or credit card debt, and need to file for bankruptcy to eliminate these debts. If your debt comes from a company you own, you don’t need to pass the means test.

If you pass the test

Passing the means test means you can file for Chapter 7 bankruptcy and have most of your unsecured debts forgiven. However, it’s important to determine whether Chapter 7 or Chapter 13 would be the best option for you. With Chapter 13, you can retain your assets and still get caught up on major debts like back taxes or a mortgage. Chapter 7 eliminates most consumer debt while Chapter 13 allows you to come up with a plan to satisfy your debt within a reasonable time period.

There is no one-size-fits-all bankruptcy, which is why there are multiple types. Determining your financial goals may help you evaluate and select the best option for getting out of debt.