The Bankruptcy Means Test: Why People File for Bankruptcy

The Bankruptcy Means Test: Why People File for Bankruptcy

Declaring bankruptcy is a huge life decision. Sadly, the number of people filing for bankruptcy is rising by the day.

However, declaring bankruptcy at the right time can present several benefits to an individual. It can offer a fresh start for people going through financial struggles by saving on time and money, preserving peace of mind, and reclaiming their financial situation.

There are many reasons why people file for bankruptcy in the state of Arizona. If you have prepared to file for one, you must pass a bankruptcy means test in Arizona. The means test determines whether your income surpasses a certain amount. Depending on your state’s income standards, you may qualify for a chapter 7 bankruptcy.

How the Bankruptcy Means Test Works

Your attorney will assist you in filing the necessary documentation and submitting it to court. If you are a business owner, your debt might be from your business, and you don’t need to pass a means test. The only people eligible to pass a means test have medical debt or primary consumer debts.

Passing the means test means you are qualified to give for Chapter 7 bankruptcy. When this happens, you are pardoned from your unsecured debts, such as credit card debt and outstanding medical bills.

Most debtors prefer choosing chapter 13 bankruptcy because it gives room for debt restructuring.

If you happen to fail the bankruptcy means test in Arizona, you can always retake the test after six months, and maybe you can qualify for a chapter 7debt pardon.  In a situation where you can’t wait longer and you don’t pass the means test, you may have to pay your debts in a span of three to five years.

Passing the means test is the most crucial stage in filing for bankruptcy. It can be a great way to resolve your debts. However, It may be challenging to rebuild your credit situation after filing for bankruptcy.

But there are ways to salvage the situation by taking personal loans or by securing your credit card. These are the significant steps to ensure you regain your financial status.

Filing for Chapter 7 Bankruptcy

Chapter 7, bankruptcy is also referred to as ‘straight bankruptcy.’ In this type of bankruptcy procedure, all your assets are liquidated to pay off your debt. The cash obtained from your investments is then distributed to pay your credit card company and banks.

Upon receiving a discharge notice, your bankruptcy record will be reflected in your history for ten years. With chapter 7 bankruptcies, almost all assets are taken and sold to creditors.

Filing Chapter 13 Bankruptcy

Chapter 13 bankruptcy applies to people who have assets that they want to keep. Chapter 13 bankruptcy offers people a grace period of three to five years to pay back their loan. This type of bankruptcy is preferable for people who still have their annual income or a consistent cash flow.

Top Reasons People File for Bankruptcy

Here are some of the common reasons why people file for bankruptcy:

Job Loss

Losing a job can have a considerable effect on a person’s finances. The majority of the people who file for bankruptcy have suffered job loss and didn’t have a backup plan to secure them on a rainy day.

Loss of constant income means a lag behind in payment of bills and loss of insurance cover, draining a person’s limited resources.

Medical Costs

Medical expenses account for 62% of all bankruptcies. When you or a loved one falls ill or suffers an accident that requires a specialized check-up, you can expect to produce hundreds to thousands of dollars.

Unfortunately, medical bills accumulate quickly, and when they pile up, it becomes expensive to pay them. After a prolonged stay in the hospital, settling medical bills tends to leave most people stuck financially to a point where filing for bankruptcy is the only option at hand.


Divorce is a complicated and expensive process. Most people going through a divorce have to pay legal fees then dig deeper into their pockets for child support and alimony costs. If one or both parties cannot make the necessary payments, it can leave them in a financial constraint and later file for bankruptcy.

Unexpected Emergencies

Unexpected natural disasters such as hurricanes, earthquakes, tsunamis, and tsunamis may damage property. Lack of insurance or emergency funds may force the affected persons to file for bankruptcy.

Most people are not familiar with special insurance funds that cater to losses after natural disasters strike. Such people may find themselves unable to retrieve all they have lost and forced to file for bankruptcy.


Overspending can lead to crippling debts. You may find yourself overspending due to poor budgeting skills, shopping for things you don’t need, or ignoring what is necessary.

The Bank is Foreclosing Your Home

Foreclosure is brought about by the inability to pay for the mortgage. People prefer to turn to file for bankruptcy rather than to lose a home. Filing for a chapter 7 bankruptcy cannot help you keep your house.

Only by filing a chapter 13 bankruptcy can you get to keep your house and carry on with the mortgage payments. However, you have to qualify for bankruptcy means test Arizona before carrying on with your claim for retrieving your home.

Home Utilities

It is impossible to survive without essential utilities in the house. Water, electricity, air conditioning, food, or water are essential utilities needed daily. The price for these utilities is high in Arizona, and failure to afford them may lead to filing for bankruptcy.

Bottom Line

Sometimes, you may need help to get out of debt when you’re unable to do it independently. However, be prepared to pass a bankruptcy means test in Arizona to file for a chapter 7 bankruptcy.

You will need the assistance of a good lawyer and the correct facts to help you achieve a fresh start. Keep in mind that bankruptcy will negatively affect your credit in the future, and when you do, you may have to pay higher interest rates.

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