Filing for bankruptcy can seem like a worst-case scenario for Americans faced with overwhelming debt. However, for many, it is a path to restoring their financial freedom when they are no longer able to pay their bills.

A new study shows those financial challenges are usually not the result of irresponsible behavior and spending above one’s means. Instead, two-thirds of all bankruptcies are tied to medical issues, including the high cost of care and lost wages.

What is the means test?

The first step to dealing with massive debt is working with an experienced bankruptcy attorney here in Connecticut who can help you find the best option for your situation. The means test determines whether you are eligible for Chapter 7 bankruptcy, which will forgive most of your unsecured debts. The test examines two areas of your finances:

  • Household income: The first part examines whether your household income is under the state’s median income, which in Connecticut is $74,168 for individuals and $93,870 for families. You’ll need to provide thorough paperwork about your income over the previous six months.
  • Household expenses: Detail all your bills during that same period. Items such as medical costs, rent, clothing and groceries are deemed “allowable expenses.” Other bills paid or items bought during that time are considered to come from disposable income, which can be used to pay off your debt.

What happens after you pass or fail the test?

Passing the test makes you eligible for Chapter 7. However, it may not be the best option for you. Your attorney can help you determine whether filing Chapter 13 bankruptcy is preferable as you can keep your assets and restructure your debt to be paid back over three to five years.

If you fail the test, there is no appeal process, and you may want to consider Chapter 13 protection. If you still believe Chapter 7 is a better fit, you must wait at least six months to see if your situation has changed enough that you meet the requirements for Chapter 7.

Bankruptcy can be an essential part of rebuilding your finances

Your bankruptcy attorney will work with you to find the best option for restoring your credit and getting out from under overwhelming debt. While going through bankruptcy can be challenging, many see it as a new beginning and a path to better days ahead.