Means Test Complications in Deciding Which Bankruptcy


means-tested! (Photo credit: bigyahu)

A Means Test was implemented in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act to help bankruptcy courts determine whether a debtor should file a Chapter 7 or a Chapter 13 bankruptcy. Simply put, families and individuals who are at or below the state’s median income for the same sized family are eligible to file a Chapter 7 bankruptcy. For those who have an income greater than the median income, the Means Test was devised to determine whether or not you qualify to file a Chapter 7 bankruptcy. The Means Test, however, has complications for the average laymen in providing the filer with information on which bankruptcy to file.

Reasons to Take the Means Test to Qualify for Filing a Chapter 7

There are a lot of different reasons you may want to file a Chapter 7 instead of another type of bankruptcy. Here are four reasons you may want to take the Means Test to determine you are eligible to file:

  1. A Chapter 7 is the simplest bankruptcy to file. The greatest majority of bankruptcies filed fall under the Chapter 7 category, and the greatest number of Chapter 7 bankruptcies are no-asset cases.

  2. Debt in Chapter 7 bankruptcy is discharged quicker than any other bankruptcy. The average case in this type bankruptcy is around four months. Other type of bankruptcies can take years to finish.

  3. Filing a Chapter 7 is normally less expensive to file. Since there is normally less work for a bankruptcy lawyer to perform in a Chapter 7 bankruptcy, the legal costs are historically lower for the debtor to file.

  4. Most unsecured debt is forgiven in a Chapter 7 bankruptcy. Portions of some secured debts can be discharged if it is determined their value at filing is less than the secured amount owed.

Some Expected Complications in Taking the Means Test

The Means Test is a formulated process determined by complex legal terms and laws. Here are just some of these complications in taking the Means Test:

  • Legal language can be a barrier to the average person who tries administering the Means Test for themselves. For instance, what does the term “marital adjustment” mean and how does the term apply in a Means Test.

  • The Means Test is divided into parts, and the person administering the parts should know what each part means and legally represents. Failure to understand the parts can create complications.

  • You really need to be familiar with the IRS guidelines to help you determine what is and what may not be accepted within the test. Failing to understand these can also complicate issues.

A Simple Solution to Complications of the Means Test

The average layman must learn bankruptcy laws and the terms of the complicated language of a Means Test, or you have a simpler option. You might want to consult with a bankruptcy lawyer having the computer software to help accurately administer the test. Many bankruptcy lawyers will give you a free consult to see if you qualify for a Chapter 7 or Chapter 13 bankruptcy. If a lawyer uses his or her computer program to officially determine your qualifications for a Chapter 7, it would not be unreasonable to pay a fee for their service.

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