Filing for Chapter 7 bankruptcy offers a financial reset, but it involves a structured process. A key factor in eligibility is the means test, which compares your financial standing to state income benchmarks. If you fail the means test, options remain available to navigate the challenge.
The purpose and function of the means test
The means test evaluates an individual’s financial situation by comparing income to the median for the state, such as Indiana. The test prevents high-income earners from using Chapter 7 bankruptcy to eliminate debts without contributing toward repayment. If your income exceeds the threshold, you may fail the means test, but your bankruptcy options are not closed.
Consequences of failing the means test
Failing the means test means you may be ineligible for Chapter 7. However, Chapter 13 bankruptcy may still be an option, as it offers a repayment plan over time, allowing you to retain assets while addressing your debts.
Additionally, it’s possible to challenge the means test. If your income does not reflect your financial reality—due to factors like recent income loss or high living expenses—you may adjust the results. For instance, large medical expenses or dependents could justify an amended financial assessment, improving your eligibility for Chapter 7.
Refiling after failing the means test
You can also reapply for Chapter 7 bankruptcy later. Changes in your financial circumstances—such as a drop in income or increased debt—could make you eligible for Chapter 7 after another attempt. The means test will be reinitiated, but different financial conditions could lead to a new outcome.
While failing the means test can block Chapter 7 eligibility, it is not a final roadblock. Other options, including Chapter 13 or adjusted means test results, offer potential solutions. Stay proactive and explore all available options, as the means test is just one step in the bankruptcy process.
