Filing Bankruptcy: Means Testing & Credit Counseling

If you're thinking about filing for bankruptcy and wonder what you have to do and if you qualify, you're on the right track. There are means testing and mandatory credit counseling requirements to meet. These items resulted from 2005 reform laws and address past abuses of the system.

Find out about means testing and credit counseling, and how these requirements factor into your bankruptcy plans. You can then move ahead and be confident about your status as you start your case and get the debt relief you need.  

Means Testing

Means testing looks at someone's income, and may dictate bankruptcy relief options. Bottom line is if you have at least a certain amount of income available to pay your debts, a Chapter 13 bankruptcy may be your only choice. In the past, too many filers used Chapter 7 when it really wasn't needed.

Bankruptcy Options: Chapter 7 and Chapter 13

The law provides for several types of bankruptcy, and most individuals file Chapter 7 or Chapter 13 cases.

In Chapter 7, you're allowed to keep some of your property, and the rest of your assets are used to pay your creditors. The court grants you a discharge from liability for almost all of the remaining unpaid debts, for example, your credit card debt. Your slate is wiped clean of your debts, and you have your bankruptcy "fresh start."

In a Chapter 13 case, you work out a plan to repay a portion of your debts over time, usually three to five years. Complete your plan and remaining debts are discharged. Think of Chapter 13 as debt reorganization for individuals.

The Means Test

Means testing consists of two parts to determine who is eligible to file for Chapter 7 relief. The first part is a threshold based on median income for your state. The median income amount varies based on the number of people in your household. You may have to use Chapter 13 if your income is above the median amount.

Move on to the means test, the second part, if your income is above your state's median amount. Generally, if you have enough excess income to pay 25 percent of your unsecured debts after you meet your basic needs, you must use Chapter 13. The law states the exact formula and thresholds, and there are forms to calculate and document these amounts. A bankruptcy lawyer can help you assess your situation and guide you through completing the right forms to get your case going.

If you try to file for Chapter 7 without meeting these thresholds, the court can convert your case to Chapter 13 or dismiss it. A bankruptcy lawyer can also help you show the court special circumstances justifying Chapter 7 if you don't qualify based on your income and means test answers.

Mandatory Credit Counseling

Bankruptcy law reform made credit counseling mandatory, with the purpose of educating filers about debt and promoting success in bankruptcy cases. You must meet with an approved credit counselor for a 90-minute session within 6 months before filing your bankruptcy petition. Next, you must complete money management classes before the court discharges your debts.

Credit counseling in a Chapter 13 case includes developing your proposed debt repayment plan. Judges have the power to reduce debts owed to creditors that refuse to accept or negotiate the repayment plan.

Your Action Plan

With an understanding of means testing and credit counseling, you can move ahead, file your bankruptcy petition, and get the help the law offers. Understanding bankruptcy requirements also helps you size up your options and can help you work with your bankruptcy lawyer.

Questions for Your Attorney

  • Despite my means test numbers, could I qualify for Chapter 7 due to my ongoing medical expenses?
  • I think I only qualify for Chapter 13. Based on my facts, is it better not to file at all?
  • Is there any impact on my case if I have a big income change just after I file? Say job loss caused my bankruptcy and I find a great job during my case?
Have a personal bankruptcy question?
Get answers from local attorneys.
It's free and easy.
Ask a Lawyer

Get Professional Help

Find a Personal Bankruptcy lawyer
Practice Area:
Zip Code:
How It Works
  1. Briefly tell us about your case
  2. Provide your contact information
  3. Connect with local attorneys

Talk to an attorney

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you