When your finances spiral beyond your control, you may start exploring your options, and one such option might include filing for bankruptcy. Unless you have enough income at your disposal to pay back some of what you owe, you may prefer to file for Chapter 7 bankruptcy, which involves liquidating your assets. 

Before you have a chance to do so, though, you need to take the bankruptcy means test. Your results will determine whether you are eligible for Chapter 7 bankruptcy or if filing for Chapter 13 is your only option. 

Taking the test 

The bankruptcy means test has two main steps. First, you need to see how your own household income matches up against the median household income in New Jersey. If yours is the lower of the two, you become eligible for a Chapter 7 bankruptcy. If yours is higher, you need to proceed to the next step of the means test. 

In step two, you must figure out how much income you have left over after paying for necessities, or “allowable expenses.” Any remaining amount becomes “disposable income.” The amount of disposable income you have determines whether you qualify for a Chapter 7 filing. 

Retaking the test 

Many prospective Chapter 7 bankruptcy filers fail the means test the first time around. Some of them decide to move forward with a Chapter 13 filing. Others decide to wait six months, at which point they may attempt to pass the means test again. If you want to move forward with a Chapter 7 bankruptcy and suspect that your financial situation may change within the next six months, consider this option. 

In the event that a Chapter 7 bankruptcy is not an option, a Chapter 13 filing may help you regain control over your financial affairs. You do not have to pay back everything you owe right away with a Chapter 13 filing. Instead, you may have up to five years to do so.