The importance of the bankruptcy means test

The importance of the bankruptcy means test

People who plan to file for bankruptcy in Michigan have probably heard of the bankruptcy means test. This may form part of the requirements to file for bankruptcy. While not an actual test in the examination sense, it evaluates a person’s income to see how it holds up to the state’s income standards.

Credit Karma explains that the test requires people to fill out their names and provide income information using two forms. The first form is known as the Form 122A-1: Chapter 7 Statement of Your Current Monthly Income. The second form is called the Form 122A-2: Chapter 7 Means Test Calculation. People who believe they will not need to pass a means test to secure eligibility may consider filling out a Statement of Exemption instead.

NerdWallet adds that the means test may consider a person’s family size when calculating eligibility for debt forgiveness. The purpose of the test is to limit the number of people who may use this to qualify for bankruptcy instead of repaying their debts according to original agreements with lenders. Even so, most people who apply pass the test easily.

People who pass the means test essentially get a go-ahead to complete the filing process for Chapter 7 bankruptcy. This may lead to the forgiveness of most unsecured debts, such as credit cards or medical bills. It is worth noting that this type of bankruptcy may involve giving up some assets as part of the debt forgiveness process. People who prefer to hold on to their possessions may consider restructuring their debt by filing for Chapter 13 bankruptcy instead.

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