Richmond VA Bankruptcy: What Is a Bankruptcy Means Test?

Are You Considering Bankruptcy in Richmond, VA?

What Is a Means Test?

If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in Richmond, VA, your attorney will likely mention a “means test.” But what is a means test in bankruptcy, and what does it entail?

A means test is an examination of your income and ability to pay your creditors to determine whether you are eligible to file for Chapter 7 or Chapter 13 bankruptcy. The means test was put in place to prevent abuse of the Chapter 7 bankruptcy provision, and if you are considering Chapter 7, you will have to take this test first.
 

Chapter 7 vs Chapter 13

For many individuals struggling with debt, Chapter 7 is the most preferred bankruptcy option because more debt is forgiven. Under Chapter 7, you are saying you are almost completely unable to resolve your debts. Some of your eligible assets may be sold for partial repayment, but remaining unpaid debts are generally forgiven.

By contrast, Chapter 13 bankruptcy is for individuals who have some ability to repay their debts, and it involves reorganizing and setting up repayment plans with creditors. Under Chapter 13, you get to keep your assets, but you still must repay your debts over time. 

How the Means Test Works

If you fear that you won’t be eligible for Chapter 7 because of your income, understand that the means test for bankruptcy measures not only your income, but your “disposable” income, in order to determine your ability to repay your creditors. If you have a lot of expenses that wouldn’t be easily removed from the equation, you may still qualify for Chapter 7 under the means test even if your income is high.

Your income from the past six months is averaged to determine your “current monthly income.” This amount is compared against your eligible monthly expenses to determine how much of your income is disposable. If this amount is below a certain threshold, you may be eligible to file for Chapter 7; if not, your attorney may recommend filing for Chapter 13.

The Clinger Law Firm is a team of expert bankruptcy lawyers in Richmond, VA who can advise you about the means test for bankruptcy and help you determine your options. To learn more about filing for bankruptcy in Richmond, VA, call us for a free initial consultation at 804-788-1655.