If you are dealing with suffocating debt, you may have tried many ways to get out from under the weight. Perhaps you are already working more than one job. You may have cut your expenses to the bare minimum and tried to negotiate with your creditors. If none of this has worked to ease your burden, bankruptcy may be on your mind.
Filing for bankruptcy is not an easy choice, but many who take this step find almost immediate relief from their creditors. Foreclosure proceedings, repossession and wage garnishment stop, and they have a moment to breathe as they prepare for the next step. Before filing, however, they must know whether they are eligible for Chapter 7, which involves the discharge of qualifying debt. This eligibility is determined by the results of the means test.
The steps for verifying eligibility
The means test is not really a test. It is more of an assessment of your financial status, your income and your ability to repay any of your debt. The bankruptcy court will use it to see where your income falls compared to the median income in Georgia. It can be complicated, and you will need to collect every piece of documentation concerning your finances from the last six months, including your income, household expenses and debts. Then, you will follow these steps:
- Calculate your total income and compare it to the state median for your household listed on the Department of Justice website.
- If your income is lower, you qualify for Chapter 7.
- If your income is higher, add up the last six months of your allowable expenses, such as rent, clothing, utilities, food and other items permitted by state law.
- Subtract your allowable expenses from your income to determine your disposable income.
- If your disposable income is less than the state median, you qualify for Chapter 7.
Only 12% of people who take the means test fail after the first step. However, many of those people qualify after they calculate their disposable income. On the other hand, if you are not eligible for Chapter 7, you likely still qualify for Chapter 13, which allows you to create a plan to reorganize and repay part of your debt. The remaining debt is dischargeable at the end of the payment plan.
Another alternative is to wait six months and retake the means test. If your financial situation has declined further, you may be eligible at that time to file for Chapter 7. If successful, you may find yourself able to breathe again with the weight of your debts off your shoulders.