Changes to the bankruptcy law nine years ago that were passed by Congress explicitly said they wanted to make it harder for some people to file Chapter 7. The idea behind this was to ensure those who would be able to pay the loans did instead of having it written off under a Chapter 7 case. Specifically, those who can pay their creditors within a three-to-five-year payment plan under Chapter 13 payment plans. At Law Offices of Brad A. Woolley we want to help you determine if you qualify and file whatever best fits your situation
How the Law Determines “Means” for Chapter 7
The means test measures people’s “means” or their ability to pay in a specific, two-part way. The first part based on income, the second part based on expenses.
The first step involving your income is relatively straightforward. However the expense step involves a more complicated formula of allowed expenses.
The good news is if your income is low enough, you’re done! You’ve passed the test and can skip the rest. Even more good news is most people who want to file a Chapter 7 case have a low enough income and don’t need to worry about the rest of the test.
Will You Pass the Means Test for Bankruptcy?
You pass the first step of the Means Test if you income is no higher than the published median income for a household of your size in your state. You can compare your income against the median income here.
A Peculiar Definition of Income
Here’s how to compare your income to the “median income” applicable to your state and family size:
1. Determine the exact amount of income you received in the six full calendar months before your bankruptcy case is filed. So if you filed on March 25, 2014, count every dollar you received between September1, 2013 and February 28, 2014. After coming up with that total, divide it by six for the monthly average.
2. Include all you’ve acquired from all sources during that six-month period, including unconventional sources like child and spousal support payments, insurance settlements, unemployment benefits, and bonuses. But exclude any income from Social Security.
3. Multiply your six-month average monthly income by 12 for your annual income. Compare that amount to the published median income for your state and family size in the link provided above. Below is a sample of the 2013 table for Indiana but make sure you have the most recent version when you compare your income.
If your income is no more than the median income for your state and family size, then you have passed the Means Test and can file a Chapter 7 case. But if your income is higher, you may still be able to pass the Means Test and file a Chapter 7 case. If you have any more questions, contact our bankruptcy attorney at (765) 420-8900. It would be our pleasure to help you in the filing process.