Many people know bankruptcy is an option for those who are deep in debt, but they may not understand the process that it entails. Although those who are in debt may think that bankruptcy is always an option, in reality, there is a process for determining if an individual qualifies for bankruptcy: the means test.
The means test is used in countries all over the world, but in the United States it is defined as “the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts.” In less legal terms, the means test is used in the courts to determine the eligibility of an individual for Chapter 7 or Chapter 13 bankruptcy. This test originated during the Great Depression to see if individuals really qualified for programs designed to help the poorest of the poor. It was then extended for use through the 60’s for the Food Stamp Program. It was not until very recent history, 2005, when bankruptcy rules were radically examined. The means test was extended to individuals filing for Chapter 7 bankruptcy, and eventually Chapter 13.
The means test’s purpose is to find debtors whose income is lower than the state’s median income. The means tested is a formula designed to keep those individuals who have higher incomes from taking advantage of the bankruptcy laws that are intended to help those need who are deeply in debt and do not have the means to restore themselves to fiscal stability.
Overall, the means rule is a time tested method of discerning between those individuals who are in need of government assistance, and those individuals who are just trying to take advantage of the government’s programs.
More information about the means test filing qualifications standards, including the implications for filing for bankruptcy protection under Chapter 7 vs. Chapter 13 may be found at the Bankruptcy Abuse Prevention and Consumer Protection Act.
Ashley Russell is a North Carolina native, hailing from Kings Mountain. She is a diehard Carolina fan who loves to watch her team play in any sport—a Tar Heel born and bred. She loves to read and write in her free time. Since high school, she has known she wanted to pursue a career that involved both reading and writing. However, she has recently discovered a love for computers, so she also hopes to incorporate them into her career. She spends her free time tutoring k-5 students in reading and writing in the Chapel Hill area. She is a second-year captain of a Relay for Life team and a participant in Dance Marathon 2011. She is also the online webmaster for the Blue & White magazine based out of Chapel Hill.
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