When you are overwhelmed by credit card debt, Chapter 7 bankruptcy can represent the fresh start you need. It is a powerful tool designed to eliminate or discharge eligible unsecured debts, such as credit card balances and medical bills. However, many people in Southern Indiana face a crucial hurdle: “Will I even qualify?”
Qualification often depends on a rule called the “means test.” It is essential to understand what this test is and how it functions.
What is the bankruptcy means test?
The means test is a standardized formula created by Congress. Its primary purpose is to evaluate if a person’s income is genuinely low enough to require Chapter 7 relief. It determines whether an individual has sufficient disposable income to repay a portion of their debt. This is not a moral judgment. It is simply a calculation to ensure people are guided to the correct bankruptcy chapter for their financial situation.
How does the means test work in Indiana?
The test consists of two main sections. The first examines your average household income from the preceding six months. That number is then evaluated against the official median income for a household of your size in Indiana.
If your household income falls below this median amount, you will presumptively qualify for Chapter 7. The U.S. Trustee Program updates these median income figures regularly to reflect current economic data.
However, if your income is above the median, do not lose hope. This does not mean an automatic disqualification. It simply means you must complete the second, more complex part of the test.
This calculation deducts your secured debt payments (like a mortgage or car loan) and specific, allowed living expenses from your total income. If the final calculation demonstrates you do not have sufficient disposable income to pay creditors, you may still qualify for Chapter 7.
What if I do not qualify for Chapter 7?
If the means test ultimately indicates you cannot file for Chapter 7, you are not out of options. You may be an excellent candidate for Chapter 13 bankruptcy. A Chapter 13 plan allows you to reorganize your debts into a single, affordable payment plan that you pay over a three-to-five-year period.
Getting help with a complex calculation
The bankruptcy means test is notoriously complex. The calculations are precise and a simple error can jeopardize your case. You do not have to navigate this process alone. An experienced bankruptcy attorney can provide crucial guidance.
