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A quick bankruptcy filing can erase all of your debt, make the bill collectors stop calling, and give you a free pass to a better future. This is how many people think about chapter 7 bankruptcy, but then they learn about the Means Test. For some, this test bursts the bubble of hope and puts a price tag on that pass to a better future.

What is the Means Test?

The means test uses three factors to determine whether you are financially allowed to go through with a chapter 7 bankruptcy filing:

• The median income for households of your size in your state.
• Your total income.
• Your expenses.

In order to be considered eligible for chapter 7 bankruptcy filing you have to meet one of these criteria:

• Your total income is less than the median income for a family of your size in your state.
• Your income is higher than the state median, but you have enough expenses to justify a bankruptcy filing at this time.

The basic goal of the means test is to make sure that people who have enough disposable money to pay their bills are not able to file for chapter 7 and erase debt just to get out of paying. If you have the ability to free up some of your income and pay back your debt, then you should be forced to do so.

If you have enough free income to pay back some of your debt but not all of it, then you will likely be suggested for a chapter 13 bankruptcy filing rather than the chapter 7 filing. Chapter 7 completely erases away your debt while chapter 13 allows you to restructure the payback so it is more affordable to your current income.

The protections offered under Chapter 7 bankruptcy are nothing new. Chapter 7 bankruptcy has been in existence for a long, long time. However, in recent years, more and more people are becoming aware of its existence and, more importantly, its protections. Why has there been such an increased awareness on the subject? Sadly, more and more people are wishing to learn about Chapter 7 because they may be in dire need of its protections. The current economic climate is dire and this has led to an incredible spike in bankruptcy filings covering many different chapter categories.

For those not familiar with what Chapter 7 bankruptcy is, this would be a form of bankruptcy filing where the courts would determine which assets you possess should be liquidated and what creditors should be paid off first and how much in the aftermath of the liquidation. Needless to say, this does not sound like the road many would prefer to travel since it can be highly stressful and entails handing over financial decisions to the courts. Yet, millions of people are seeking this exact form of protection. Yes, there are literally millions of people seeking bankruptcy protection as the numbers f personal bankruptcy filings have skyrocketed in recent years.

The reason they are doing so is not because the rules of filing for bankruptcy have been made lax. Rather, the current economic climate is so dire that more and more individuals are finding themselves unable to meet their financial obligations. Why is this so? Several of the current economic factors contributing to such an outcome include:

• A collapse of the housing market has led many to lose much of their net worth. When a home is worth less than what it was paid for, serious financial repercussions can result.