For many people, bankruptcy is a viable option to overcome insurmountable debt. A Chapter 7 bankruptcy filing allows filers to dismiss either a portion or all of their debt when repayment is seemingly impossible. To avoid abuse of the bankruptcy system, a 2005 law instituted a Means Test to determine if you have the means to repay some or all of your debt. If you do not have the means, then you qualify for a Chapter 7 bankruptcy.

The bankruptcy means test is a calculation tool used to determine whether your income is enough to cover your living expenses and a debt repayment plan. The main calculation is your mean income. Your mean income is calculated by determining your average monthly income over the last six months to determine your average annual income. Once you have your median income figure, you’ll compare it to the median income of your area and your household size. If your mean income is less than the Arizona median income for your area, you automatically pass the means test. If your income is at or above the Arizona median income level, you will then need to calculate your “disposable” income. If your disposable income is not enough to cover a portion of the debts you owe over a five-year repayment plan, you pass the means test and qualify for a Chapter 7 bankruptcy. If you fail either test, you may qualify for a Chapter 13 bankruptcy instead.