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How does the federal "means test" work?

Many people who live in Cleveland or in other parts of Bradley County, Tennessee, and who are facing financial challenges, may be frightened by the federal "means test" that is used in most family bankruptcy cases. But, residents should not fear this test.

The means test does not screen anyone completely out of the bankruptcy process. No one who has some financial problems, but who is high income should therefore assume bankruptcy is not an option.

On the other hand, if a person or couple cannot "pass" the means test, they likely must file a Chapter 13 repayment plan bankruptcy. This is instead of the more common Chapter 7 bankruptcy, which allows debtors to surrender non-exempt property and discharge their debts.

The means test consists of two basic parts. The first looks only at a family's total income from all sources over the previous six months. If it appears that the income falls below a median level for another Tennessee family living in generally the same area and with the same size, then no further inquiry is necessary. If so, the family has passed the means test and may file a Chapter 7 bankruptcy.

If not, then the family must give an account of all of their monthly expenses. Once calculated, if it appears that the family has some money that they could devote to paying-off unsecured creditors, like credit card companies and medical providers, then they will be expected to file a Chapter 13 bankruptcy and repay a portion of their debts over time.

The means test may require families with higher income to file a Chapter 13 bankruptcy. Nonetheless, it does not stop anyone from getting a discharge altogether. And, as bankruptcy laws are rather complicated, one may be best served consulting with an experienced bankruptcy attorney.

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