Filing for Chapter 7 bankruptcy can be a complex process. In Maryland, individuals must navigate the means test to determine their eligibility.
The means test assesses your financial situation to see if you qualify for this form of debt relief.
Monthly income calculation
The means test begins by calculating your average monthly income over the six months before bankruptcy. The court considers all sources of income, such as wages, rental income and other forms of financial support.
Median income comparison
Next, the means test compares your calculated income to the median income for a Maryland household of the same size. You pass the means tests and qualify to file Chapter 7 if your income falls below the median. However, you do not immediately fail the means test if your income exceeds the median.
Disposable income determination
The court will adjust your income by the amount of allowable expenses. Examples include housing, utilities and other necessities. You may still qualify for Chapter 7 if your adjusted income falls below the median amount. If your income still exceeds the median after these adjustments, you can seek a repayment plan through Chapter 13 bankruptcy.
The means test limits the availability of Chapter 7 bankruptcy to individuals who do not have the financial means to pay their debts. More than 5,900 Maryland residents filed for Chapter 7 bankruptcy in 2023 alone. If you cannot keep up with your bills, understanding and taking the means test can help determine your path out of a difficult financial situation.
