One of the most significant changes that occurred as a result of the 2005 bankruptcy law is something called the means test. This will supposedly help determine whether consumers filing for bankruptcy are able to pay a significant portion of their debts. In other words, creditors didn’t want Americans to simply wipe out their debts in Chapter 7 without proving that they really needed this assistance.
Many bankruptcy lawyers consider this to be a waste of time, because they believe the means test only adds a complicated set of calculations that makes life more difficult for the average American in need of debt assistance.
Nevertheless, this is part of the Law, at least for now, and anyone trying to discharge debt obligations will need to confront this test. Actually, if your salary is lower than the median salary for your state, you don’t even have to worry about trying to pass a so-called means test. It is assumed that you do not have the means to pay for your financial obligations and that you really do need bankruptcy because your monthly income is so low compared to others in your state.
If your salary is higher than the median income for your state, you will have to go through this rigorous examination of your income and expenses to help determine whether you have the ability to pay everything off without Chapter 7. You may be surprised to learn that you have a good chance of passing this test anyway, as it simply places some obstacles in your way but does not eliminate the possibility of declaring Chapter 7.
If you do not pass this test, you may be forced to declare Chapter 13 which demands a repayment plan for the next three to five years. Any amounts not paid by that time will be eliminated.