When you apply for Chapter 7 bankruptcy in Tennessee, the court must determine if you are capable of paying back your creditors. So they will conduct a test known as a “means test,” which, if you pass, you’ll be able to clear your debt through the Chapter 7 bankruptcy process; but if you fail, you will have to look for other ways to settle your debts.
What is it, and how it works
A Chapter 7 means test is a financial assessment that looks at how much money you make and how much debt you carry. This test is for individuals who have consumer debts like credit card bills and medical expenses.
There are basically two steps to this process. The first is to compare your monthly income to the median income of a family in Tennessee. If you make less than the median, then you automatically pass and can proceed with filing for Chapter 7 bankruptcy.
If your income is higher than the median amount, you will have to move on to the second step. This step requires an examination of all of your debts, assets and living expenses. The court looks at how much disposable income you have left over each month after paying off these bills and determines if it is enough to pay off any debt you owe. If so, you won’t be able to file for Chapter 7 bankruptcy.
Why it matters
The Chapter 7 means test is important because it prevents those who can pay their debt from taking advantage of the bankruptcy system and escaping without paying back what they owe. Without this test, filing for Chapter 7 would be too easy and could lead to people using it to get out of paying their debts, which is not fair to creditors or other debtors who truly need help.
While there are no appeals for the Chapter 7 means test, failing doesn’t mean that you won’t be able to get help with your debt. Depending on the amount you owe, you may still be eligible for Chapter 13 bankruptcy, which can allow you to pay off some or all of your debts over time. You could also try a Debt Management Plan (DMP) or a Consumer Credit Counseling Service (CCCS). Both DMPs and CCCS are free programs that let you make manageable monthly payments to improve your financial situation.