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How does the means test work?

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Before you file for a Chapter 7 bankruptcy, you will need to show the court you qualify for relief from your debt. One of the main ways you can show this is with the means test. This assessment will measure how much your income compares to your expenses.

Since a Chapter 7 filing will wipe away much of your debt, bankruptcy law limits it to people with limited income. The means test rules out anyone who has an income that can help them pay off debt.

The first step sees if your income is below the state median

When you take a means test, you may go through one or two steps. In the first one, you calculate how much money you made in the last six months and find the monthly average. Then you compare it to the median income of South Carolina.

If your income is less than the median, you automatically pass the means test. However, a bankruptcy court will want to make sure you include any money you regularly receive. If you don’t list all your income, a judge may not let you file for bankruptcy.

In the second step, you can subtract certain expenses from your income

If you don’t pass the first part of the means test, you move on to the second step. You list any allowable expenses you had in the previous six months. These are for things like food, housing, clothing and medical bills, among others. Since the court considers these necessities, you can subtract these costs from your income.

This step lowers the monthly income you calculated in the first step. If the new figure is below the South Carolina median, your income qualifies for Chapter 7 bankruptcy.

A means test proves your eligibility for Chapter 7

If your income is too high, you may need to switch to a Chapter 13 repayment plan. But if you pass the means test, you let the court know that you have no way to pay off what you owe. To help you reset your finances, you may need a bankruptcy judge to wipe away some of your debt through a discharge.

The means test lets you qualify for a Chapter 7 bankruptcy and seek relief from high debts.