The bankruptcy means test is designed to determine whether people truly don't have enough money to repay their debts. To qualify to file chapter 7 bankruptcy, you must pass this test. If you fail, your petition for this type of bankruptcy will be rejected, and you'll have to employ other alternatives for dealing with your debt. Here are three options you can explore if you fail the chapter 7 bankruptcy means test.
The first thing you can, and probably should, do is to review your paperwork to make sure you didn't make any mistakes that caused you to fail the means test. It's not unusual for people to estimate their income and liabilities, but using imprecise numbers could have resulted in you overstating in some areas and underreporting in others. Redo the worksheet being as precise as possible to see if that helps.
Another common mistake people make is underestimating deductions or forgetting about them altogether. There are a number of expenses you can subtract from your income that may make it easier to qualify for chapter 7 bankruptcy. For instance, you can deduct any out-of-pocket healthcare costs you incur for yourself or your dependants as well as the cost of caring for an elderly or chronically ill family member.
Research the various deductions available and be sure to account for them when calculating your expenses.
File Chapter 13
Failing the chapter 7 means tests doesn't mean you can't file bankruptcy at all. On the contrary, the court will typically recommend you file for chapter 13 instead. Also referred to as the Wage Earner's plan, chapter 13 bankruptcy lets you enjoy the most important aspects of filing bankruptcy (e.g. the automatic stay, discharge of debts), but you are required to make monthly payments to the bankruptcy trustee for 3 to 5 years. Those payments are distributed to your creditors.
Chapter 13 is a mixed blessing. This plan requires you to repay your creditors. However, the monthly amount you must pay is based on your income and expenses and likely to be significantly less than what you're currently paying every month. Additionally, any balances leftover at the end of your plan are typically discharged, but only if they aren't on the list of non-dischargeable debts (e.g. student loans, certain taxes).
Even though it may not be exactly what you want, filing chapter 13 may actually be the better option, especially if there are assets you want to keep (e.g. vehicle). Discuss the pros and cons of this option with a bankruptcy attorney to help you decide if it's the right decision for you.
Wait to File Your Case
If you expect your income to decline or your expense to increase after a certain period of time, one option is to wait to file bankruptcy after that occurs. For instance, if you know you'll be laid off from your job in the next 3 months, wait about 6 months to file again. The months where you don't have any, or very little, money will bring down your average income and possibly increase your chances of passing the means test.
This is particularly true if those barren months put your income below the median. You'll automatically pass the test if this occurs.
Of course this option is only possible if you don't have a pressing reason to file bankruptcy. For instance, if you're trying to stop a foreclosure, waiting may result in you losing your home. An alternative is to file chapter 13 to get the automatic stay and then try to have your case converted into a chapter 7 at a later date.
For more advice on what to do when you fail the chapter 7 means test or assistance filing for bankruptcy, contact an attorney.