Filing for bankruptcy may help you dig yourself out of overwhelming debt, but before moving forward, you must figure out what type of bankruptcy filing to make. Most who file for personal bankruptcy do so through a Chapter 7 or Chapter 13 arrangement, and there are some differences between the two types.
Per NerdWallet, a Chapter 7 filing helps those who have limited assets get their finances back on track, while a Chapter 13 bankruptcy helps those who have the ability to pay back at least some of their debts. Before you decide which type might better suit your needs, you need to figure out if you are even eligible for a Chapter 7 filing by taking the bankruptcy means test.
Test details
At its core, the bankruptcy means test determines whether the assets you have allow you to move forward with a Chapter 7 filing, or whether you may have too much income available to you and should consider a Chapter 13 filing. The test has two steps, but if you pass the first step, you do not have to bother with the second one.
The first step
The first step in the means test involves comparing your household income against the median household income in Arkansas. If yours is the lower of the two, you already qualify for a Chapter 7 bankruptcy.
The second step
If you do not qualify during the first step but still wish to try to do so, the second step requires you to collect more information about your income and monthly expenses. Doing so helps you figure out how much you have available to pay down debts after factoring in your typical living expenses. The figure you come up with during the second step should help you determine whether a Chapter 7 filing is an option.
If you do not pass the means test and do not wish to start a Chapter 13 bankruptcy filing, you have the option of trying to pass the test again in six months.
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