The Means Test and Your Eligibility To File for Chapter 7 Bankruptcy in North Carolina

Nearly 7,500 individuals and businesses file for bankruptcy in North Carolina each year, about one-third of whom are Chapter 7 bankruptcy filers.

Chapter 7 bankruptcy enables individuals to seek fresh starts by helping them eliminate unmanageable debts. If you’re facing financial hardships and looking for a way out, filing for this type of bankruptcy might be the perfect solution.

The means test dates back almost a century, and it’s one of the key tools utilized to determine whether or not an individual may file for Chapter 7 bankruptcy in the Tar Heel State. Learn more about it below before using it to see whether you qualify to file for bankruptcy.

What Is the Means Test?

The British government introduced the means test in the 1930s. This test was initially used to determine whether families were eligible for government financial assistance to stay afloat during the Great Depression.

Since then, this test has been used in many other contexts. For example, the U.S. government has used it to determine eligibility for everything from the Earned Income Tax Credit to the Supplemental Nutrition Assistance Program, making it an extremely helpful tool for many undergoing financial hardship.

Additionally, the test is a key component of bankruptcy proceedings. Prior to filing for Chapter 7 bankruptcy, in particular, people can work their way through the test to determine their eligibility.

How Does the Means Test Work?

Before North Carolina allows individuals to file for Chapter 7 bankruptcy, the state makes them use the means test to determine their eligibility. The test makes it possible to compare an individual’s average income to the median income in NC. Your income must fall below the state’s median income to make you eligible to file for bankruptcy in the first place, making it a crucial starting point for anyone considering going down this path.

Several other factors will come into play while you’re moving through the test outside of just your income. This test also takes the following factors into account:

• Your household size
• Your disposable income once certain expenses (housing, food, clothing, etc.) are subtracted
• The amount of your anticipated debt discharge

Does the Means Test Apply to Everyone Considering Chapter 7 Bankruptcy?

The means test will apply to many people considering Chapter 7 bankruptcy in North Carolina. It’s designed to prevent them from abusing the state’s bankruptcy system.

However, some exceptions to this rule could prevent you from having to go through the test to qualify to file for bankruptcy. Military members, for instance, may earn exceptions and be eligible to file for bankruptcy without taking the test.

Will Previous Bankruptcies Impact Your Ability To File for Chapter 7 Bankruptcy in North Carolina?

You might pass the means test and prove you should be eligible to file for Chapter 7 bankruptcy in North Carolina, but this doesn’t automatically mean you’ll qualify. Even after passing the test, there may still be obstacles that will stand in your way when it comes to filing for bankruptcy.

If, for example, you’ve filed for bankruptcy at any point over the last eight years, you can’t file for it again. Even if the test suggests you might benefit from filing for bankruptcy, you won’t maintain eligibility until that eight-year interim has passed.

Should You Hire a Bankruptcy Lawyer To Help You File for Chapter 7 Bankruptcy in NC?

Taking the means test isn’t too difficult. You can find forms online, like Form 1221A─1 and Form 1221A─2, that make it simple to calculate your income and expenses to see where your disposable income stands.

Still, filing for Chapter 7 bankruptcy can present challenges you may not be prepared for. You might even find that you’re better off filing for Chapter 13 bankruptcy as opposed to Chapter 7 bankruptcy in some cases.

Hiring a bankruptcy lawyer to help you file for bankruptcy can make the process more seamless. You can also receive answers to your pressing questions about filing for bankruptcy and the impact it will have on your finances moving forward.

Call Us To Find Out Whether You’re Eligible To File for Chapter 7 Bankruptcy

Are you confused about how to take the means test, or are you still struggling to wrap your head around how Chapter 7 bankruptcy works? Biggs Law Firm can lend a hand and ensure you know about your rights as far as filing for bankruptcy is concerned. Contact us at 919-375-8040 to schedule a bankruptcy consultation.