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Understand the means test for Chapter 7 bankruptcy

A person who's going to file for bankruptcy has two main options for doing this. One of these is Chapter 13, which requires you to make regular payments to the bankruptcy court. The other is a Chapter 7, which liquidates nonexempt assets to pay off debts. The catch to the Chapter 7 is that you have to pass the means test before you can file.

The means test is a bit confusing when you first read about it. In a nutshell, it is meant to ensure that only people who truly can't pay for their debts through a Chapter 13 are able to secure the protection of the liquidation bankruptcy. Since people who file Chapter 7 don't make payments, the process is much faster than a Chapter 13.

Each state has its own income standards for the means test. It's based on the median income for the state and factors in the number of people in the household. In Tennessee, a single person can make up to $46,088 and qualify for a Chapter 7. A two-person household's limit is $56,865, a three-person household's limit is $66,252, and a four-person household's limit is $77,260. Households with more than four people simply add an additional $8,400 per additional person to come up with their limit.

Remember that you also have to meet certain other requirements, including going through credit counseling. Making sure that you have everything in order can help you to go through the process faster, so be sure that you work with someone who's familiar with bankruptcy and what you need as you go through it.

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