Anyone filing for bankruptcy should hire a bankruptcy attorney before proceeding any further. It’s best to know the strength of your case before you head to court, which will use a “means test” to determine whether or not you are eligible for bankruptcy benefits (if indeed you can call them “benefits”.)
According to Cornell University, the legal definition of “means test” relates to Chapter 7 bankruptcy filings. Cornell describes it as “a formula that uses in bankruptcy law to decide if the debtor is eligible for Chapter 7 bankruptcy. If the debtor fails the means test, the debtor can only apply for Chapter 13 bankruptcy. The purpose of the means test is to see that if the debtor is abusing the bankruptcy system by filing Chapter 7 bankruptcy cases even though they could afford to pay at least some of their debts. Therefore, the means test is mainly testing the ability of the debtor to pay the creditor(s).
There are two steps to a successful means test. The first step measures the monthly income of the debtor at the time of filing and compares it to the census bureau’s median income in the state where bankruptcy was declared. The median income is updated yearly.
If the debtor’s income exceeds the given threshold, a second step is introduced into the equation. In this second step, required monthly expenses are subtracted from the aforementioned monthly income for a period of sixty months. Expenses included in this formula are food, clothes, health care, rent, utility costs, and costs of transportation.
If the debtor remains exigent after these steps are followed during the means test, then bankruptcy will be successfully completed. The debtor will have to wait several years before they can apply for bankruptcy again, which means it is best to wait until all other financial options have expired before declaring Chapter 7 bankruptcy.