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If you’re considering bankruptcy, you may have heard rumors about having to “qualify” for bankruptcy first. The assumption is that you must be nearing complete poverty before you can file bankruptcy. Because of this myth, many people drain their hard-earned savings, borrow against their retirement funds and even borrow additional money to try and pay down debt.

However, none of these options are necessary or helpful to conquer overwhelming debts. Believe it or not, many people with steady jobs and multiple assets can still obtain debt relief through bankruptcy, even Chapter 7 bankruptcy in some cases.

Unlocking the myth about the means test

The myth of qualifying for bankruptcy started because of updates made to the U.S. Bankruptcy code in 2005. Under these updates, all those who file bankruptcy must take a “means test.” This isn’t a literal test, but a formula used to compare your income against the median income of your state. Those whose income is higher than the median income of similar households do not qualify for Chapter 7 bankruptcy, and must seek other debt relief options.

So, some people have mistakenly believed that you must “qualify” to file bankruptcy. In fact, the means test helps you determine which form of bankruptcy you’re eligible for – Chapter 7 or Chapter 13.

How deductions can help with the means test

In addition, you may still qualify for Chapter 7 bankruptcy depending on the amount of disposable income left to you. The means test calculations take certain deductions and “allowed” expenses in your budget into account, including:

  • Mandatory deductions from payroll
  • Mortgages, vehicle loans and other secured obligations
  • IRS regulated living expenses
  • Certain regularly occurring extraordinary expenses
  • Certain expenses where actual amounts paid are documented

If you do not have enough leftover income once these costs have been deducted, then you may satisfy the requirements of Chapter 7 under the means test. If you have a significant amount of disposable income left, you may have to consider filing Chapter 13 or seeking alternatives to bankruptcy.

How a bankruptcy attorney can help

Because the process requires the gathering, preparation and analysis of financial records and other documentation, many find it too complicated to attempt on their own. So, if you think you’re not qualified to file bankruptcy, talk with an experienced bankruptcy attorney. A bankruptcy attorney will help you evaluate your situation and advise you on what options are available to help you get debt relief.