Realizing that you may need to file for bankruptcy is often only the first of multiple difficult decisions. After that, you will have to decide what kind of bankruptcy you file. The different chapters of bankruptcy help people in different financial circumstances.
Chapter 11 bankruptcy is a great option for people who own their own farms, while Chapter 13 bankruptcy is accessible to those who have higher than average income or a lot of personal property. Chapter 7 bankruptcy is usually the best option for those with only moderate levels of personal property and closer to average levels of income.
To file for Chapter 7 bankruptcy, you need to pass a means test. How do you determine if you qualify?
How does means testing work?
Means testing compares your income to the income levels reported by people in households of a similar size in the same state. You can adjust your income for certain allowable expenses. You then compare your adjusted income to the median income in Nevada for your household size.
In Nevada, the current median family income for a household of one is $54,394. For two people, that amount increases to $69,804. Three-person families have a median income of $77,536, and with four people, that amount increases to $84,764. Larger families can add another $9,000 per family member to the household income limit for the purpose of means-testing.
Why do you need to pass a means test?
Bankruptcy rules have to balance what is best for those filing with the companies or people who hold debts. Chapter 7 bankruptcy is the fastest and most aggressive form of consumer bankruptcy. Creditors would be at a disadvantage if any individual could simply choose not to pay their credit card back and file for bankruptcy while keeping everything they purchased using credit.
Means testing helps ensure that those with the ability to repay their creditors file a form of bankruptcy that requires repayment. Those whose income levels are quite close to the prince limit for means-testing may benefit from a closer review, as a few more adjustments might allow them to qualify.
Understanding how the courts decide if you can file for Chapter 7 bankruptcy makes choosing how to file easier.