Bankruptcy is a proceeding that provides debt relief. Two common types of bankruptcy are Chapter 7, a liquidation, and Chapter 13, a repayment plan. Many people in Mississippi choose Chapter 7, but they must pass a means test.
Overview of the bankruptcy means test
Congress added the bankruptcy means test in 2005 because too many high-income filers took advantage of Chapter 7. The means test compares six months of income to the average wages for a similar household in the state.
If the consumer exceeds the median, they continue to step two, which determines disposable income by deducting allowable expenses. This means high-earners are often eligible if they have significant qualifying expenses to pass the second part. National Standards of allowable expenses include housing, food, utilities, children’s sports expenses, transportation, medical, and personal care products.
Filers who have less than $136 in disposable income commonly qualify and those with more than $227 will not qualify. If the figure is between $136 and $227, the figure is multiplied by 60, assuming the debt is paid in five years.
If a consumer fails the means test, they can’t file Chapter 7, but there are a few exceptions. They may provide proof they have a special circumstance, such as exceedingly high rent or a medical condition, and explain the necessity.
Veterans may qualify for an exemption from the test if they accrued most of their debt on active duty. They must also have gotten a discharge because of a disability and have a minimum 30% disability rating.
Reservist and National Guard members on active duty after September 11, 2001 may get a temporary exemption from the test. They must have been on active duty in the past 90 days and completed the test after 540 days.
Consumers who don’t qualify for Chapter 7 commonly must file Chapter 13, a debt repayment plan. Chapter 13 can be challenging, so it is wise to research options before making a decision.