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Prior to 2005 anyone could file a chapter 7 bankruptcy (quick discharge of debt) or chapter 13 bankruptcy (repayment to creditors). Typically it was up to the trustee or bankruptcy judge to determine if your case was best suited for a chapter 7 or 13 bankruptcy filing.
Why is Chapter 7 Bankruptcy so popular? This type of bankruptcy filing allows a person to discharge debt and walk away to begin life anew again. It is a quickest and sometimes easiest form of bankruptcy.
Now, the law includes a Bankruptcy Means Test, which determines if you qualify for a Chapter 7 Bankruptcy. This bankruptcy "means test" is for those people with consumer debt – credit card, mortgage, car loans and the like. Even if a business failure put you in a position of filing personal bankruptcy, a "means test" applies to you.
The Bankruptcy Means Test evaluates your income from all sources versus the official median income of other consumers in your state. This test determines whether your income from all sources is higher or lower than the median income in your state.
The Bankruptcy Means Test was not designed to prevent you from filing bankruptcy. It only helps to serve notice as to which bankruptcy is most appropriate for you – Chapter 7 Bankruptcy or Chapter 13 Bankruptcy.
Since this new law went into effect most people who applied for a Chapter 7 Bankruptcy actually qualified, according to recent reports.
Bankruptcy Means Testing does not apply to business bankruptcy.