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If you are considering filling for bankruptcy for personal consumer debt, you have likely looked into your options of filing for Chapter 7 or Chapter 13 bankruptcy. The primary difference between the two is that Chapter 7 bankruptcy discharges most debts, while Chapter 13 initiates a repayment plan to pay back the debts. And while Chapter 13 is a better option for those who wish to retain any property holdings, strained personal finances may make Chapter 7 discharge the preferred bankruptcy route.
However, not everyone is eligible to file for Chapter 7 bankruptcy. To find out if you are, you will first have to clear the Chapter 7 bankruptcy means test.
The bankruptcy means test is a formula used to determine whether a person's income is too high to file for debt discharge. The test takes into consideration income level as well as expenses such as mortgage and car payments. The bankruptcy means test requires you to first assess how your average monthly income over the past 6 months compares to the median monthly income in your state. If yours is lower, then you are eligible to file for Chapter 7, without taking the bankruptcy means test.
If your monthly income is higher, then you can use an online bankruptcy means calculator to assess your eligibility to file for Chapter 7 bankruptcy in your state.
If you don't pass the bankruptcy means test because your income is too high to file for Chapter 7, you may still be eligible to file for Chapter 13, which in the long run may be the preferable option for rebuilding credit and satisfying existing debt obligations.