Bankruptcy: The means test will help determine your eligibility

On Behalf of | Sep 3, 2020 | Chapter 13 Bankruptcy, Chapter 7 Bankruptcy |

This year has been financially challenging for many Tennessee residents as well as others throughout the country. Perhaps, you or your family member unexpectedly faced unemployment and were unable to find a new job. Maybe someone in your household had to undergo surgery or was treated for a chronic health condition. Medical care is expensive, even if you have insurance. When you can no longer make ends meet and your debt seems to be getting out of hand, bankruptcy can be valuable financial tool.

There are several types of bankruptcy, and it’s possible to qualify for one but not another. It’s best to learn as much as you can about each type ahead of time to determine exactly which application you should file. There are precursors in place to help you make such determinations, such as the means test. If you are considering filing Chapter 7 or Chapter13 bankruptcy, you will take this test before filling out an application. 

How a means test works

The means tests uses several factors to determine if you qualify for debt forgiveness under the Chapter 7 bankruptcy program. Such factors may include your household family size, income and a list of expenses. The system compares your income to average households of similar size throughout the state. If you earn more than the determined mean income in Tennessee, you will not be eligible for Chapter 7 bankruptcy. 

Ineligibility does not mean you’re out of luck

Don’t lose hope if you take a means test and do not qualify for application under Chapter 7 bankruptcy. You may, in fact, be eligible for Chapter13 bankruptcy instead. This is known as the wage earner’s debt relief. You would prove that you have reliable, disposable income available to pay back debt. Your creditors would work with you to restructure your payment plans so that you could continue to make payments in a way that is more economically feasible under your current financial circumstances.

Under Chapter 13, it’s often possible to retain ownership of certain assets, such as your vehicle or home. It is different than Chapter 7 in that you must earn at or above the average income for similar-sized households in your state.

Why bankruptcy is a valuable financial tool 

You might be among those who view filing for bankruptcy as a financial failure. To the contrary, it is often the key to obtaining debt relief and laying the groundwork for a stronger financial future. Both types of bankruptcy remain on your credit report for several years; however, once the designated time has expired, your record is clear. You may also qualify for certain types of secure credit to help you increase your credit rating.

Filing for Chapter 7 or Chapter 13 bankruptcy can be a complex, stressful process. Taking an eligibility test is a logical step toward determining a best course of action in a specific set of circumstances. It’s also helpful to speak with a financial adviser as well as someone well-versed in Tennessee bankruptcy laws and regulations.


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