An explanation of the bankruptcy means test
Michigan consumers who are considering filing for bankruptcy must first pass a means test. This examines their income and financial obligations and determines whether they are eligible to file for Chapter 7 bankruptcy. A Chapter 7 bankruptcy allows a person to have most debts discharged with a few exceptions such as student loans. However, if people have assets they want to keep, such as a house, they might want to file for Chapter 13 bankruptcy instead since this allows them to restructure those debts with a payment plan.
The initial means test is based on a person’s income compared to the state median income. If a debtor’s income is below the median, then the debtor can proceed with Chapter 7 bankruptcy. However, if people do not qualify in this way, they must itemize their expenses. If their disposable income is still very low, they might qualify for Chapter 7.
If they do not qualify, they have two options. They can file for Chapter 13, or they can try again in six months to pass the means test since it looks at the past six months of income.
Individuals who are struggling with debt might be concerned about filing for bankruptcy because they are misinformed about it. For example, they might think that people file for bankruptcy because they are irresponsible, but there are many life events, such as unemployment, that can force responsible and conscientious people into bankruptcy. Bankruptcy does not mean losing everything or never being able to rebuild credit. Furthermore, one of the most stressful aspects of being in debt is dealing with calls from creditors, and attorneys will inform their clients that a bankruptcy filing puts a stop to these.