Filing for bankruptcy in Maryland requires passing a means test. This test helps the court decide if you qualify for Chapter 7 bankruptcy. It compares your income to the median income in Maryland and examines at your regular expenses.
Credit card debt plays a key role in this calculation. Understanding how your credit card debt may affect your eligibility will help you decide if bankruptcy is right for you.
What is the bankruptcy means test?
The means test has two main parts. The first part checks if your household income is below the state median. For example, as of 2024, the median income for a household of one in Maryland was just below $55,000. If your income falls below that amount, you may immediately qualify for Chapter 7 bankruptcy without any extra steps.
If your income is above the median, the test moves to the second part. This part allows for deductions, including expenses and payments on certain debts. Credit card debt can affect this part of the test. The test allows deductions for minimum monthly payments on credit cards if you are filing for Chapter 13 bankruptcy. These deductions reduce the amount of disposable income available to repay creditors.
However, in Chapter 7 cases, credit card debt does not reduce income during the means test. Instead, it adds to the overall financial picture and may show that the applicant cannot keep up with their debts. This becomes important when the court decides whether the person is abusing the bankruptcy process or filing with good reason.
How does credit card activity affect the bankruptcy process?
Some credit card purchases may also raise concerns. If you made large purchases or took cash advances shortly before filing, the court may look closer at those transactions. In some cases, the court may decide that those debts are not dischargeable.
Maryland follows federal rules for the means test but uses state-specific income guidelines. This makes it important for anyone considering bankruptcy to understand how local income levels and expenses apply. Credit card debt can increase financial pressure and may lead to bankruptcy, but in regards to the means test, it can show why someone needs relief.
