In 2005, The United States made adjustments to its bankruptcy laws in an effort to guarantee that only the most eligible individuals can file for Chapter 7 or Chapter 13 bankruptcy. Before the changes, there were many wealthy debtors who took advantage of the system in order to avoid paying off loans and debts they had accrued over time.
The means test is comprised of several rounds of paperwork that are supposed to prove that the debtor has incurred debt beyond their ability to repay and that they are living under the median amount of disposable income. The courts will investigate the individual's average income for the preceding six months and compare the annual or monthly income to the amount of disposable income left after bills and other required payments.
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These numbers will be compared to the median income in the state in which the person filed for bankruptcy. If their income is significantly lower than the median, they will be more likely to remain eligible for Chapter 7. If the person is paid more than the state median income, they will likely lose Chapter 7 eligibility, but they may still be able to file for Chapter 13. If the debt of the person would exceed $10,000 after five years of payment, the individual may qualify for Chapter 13. Although the means test is new, it is designed to prevent people from abusing the bankruptcy system and ensure that those who are in real need of assistance will be helped.
Bankruptcy laws are complex and may have subtle differences from state to state. For advice and representation during this difficult time, seek legal counsel.
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