For South Carolina residents considering Chapter 7 bankruptcy, the means test helps determine eligibility. This test assesses whether a debtor’s income falls below a specified threshold. If it does, the individual may pursue Chapter 7 bankruptcy.
Understanding how this means test operates sheds light on the eligibility criteria and the financial considerations South Carolina residents must navigate when seeking debt relief through Chapter 7.
Determining financial qualification
The means test evaluates a debtor’s financial situation. In South Carolina, it compares the debtor’s income to the median income for a household of similar size in the state. If the debtor’s income is below the median, the debtor passes the means test. In doing so, he or she becomes eligible for Chapter 7. If the income exceeds the median, further analysis involves deducting allowed expenses to determine disposable income.
Deducting allowable expenses
To calculate disposable income, the means test allows debtors to deduct certain allowable expenses from their income. These expenses include items like housing, utilities, transportation, and health care. The goal is to determine how much income is available to repay creditors after accounting for essential living expenses. If, after these deductions, the debtor’s disposable income falls below a certain threshold, Chapter 7 may still be a possibility.
Recognizing special circumstances
The means test acknowledges that not all financial situations are the same. Sometimes, special circumstances impact a debtor’s financial picture. In these situations, adjustments to the means test may be possible.
According to Forbes, 94% of Americans who take the bankruptcy means test pass it. Understanding how the process works is important for anyone seeking a fresh financial start.