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Means Test

The means test was put in place for consumers to determine their eligibility to file a Chapter 7 bankruptcy. The test is only applicable to higher income earners which means that if you earn less than the income median for your state, you are automatically eligible to file for a Chapter 7 bankruptcy.

If your income exceeds the median income, you will be required to complete the means test to determine if you can pay back a portion of your debt under a Chapter 13 bankruptcy. This process involves calculating your total expenses and total income. You are required to disclose all sources of income including rental income, business income, interest and dividends earned, retirement and pension plans, and unemployment income.

Information pertaining to your expenses is based on local and national standards as per the Census Bureau and the Internal Revenue Service. Actual expenses, such as those necessary for health and welfare can be included.

Once you have gathered all the necessary information, subtracting your expenses from your income will determine how much of funds you have available to repay debt in a Chapter 13 filing.

It is important note that simply because you qualify for a Chapter 7 bankruptcy does not mean that you should. If you have valuable property like a home which you are trying to keep, a Chapter 13 bankruptcy might be a more attractive option. It is recommended to consult with an attorney to determine whether you should file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

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