Bankruptcy Means Test
In a Chapter 7 bankruptcy filing, a debtor will need to pass the Means Test in order to proceed with the bankruptcy filing.
What exactly is the Means Test? It is a test that measures your income and expenses, and determines if you have the means to pay your debts or not. If you are unable to satisfy your debts given your income and expenses, then you pass the Means Test.
Passing Bankruptcy Means Test With a Low Income
If your median income is less than the median income for your family size in your particular state, passing the means test is a fairly easy and straightforward and you will essentially automatically pass it. Recent census numbers indicate the medium income in California for a family of four is approximately $80,458.
That being said, timing can play a key factor in successfully passing the Bankruptcy means test. The means test looks at your income received for six months prior to filing for bankruptcy. In other words, if you file bankruptcy in November you would calculate your income from May through October and compare it to medium in your state. An important thing to note when calculating your income is that you must count all income whether it be income, or otherwise, such as child support, bonuses, settlements, or profits from the sales of personal items.
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Passing Bankruptcy Means Test With a Low Income
If your median income is less than the median income for your family size in your particular state, passing the means test is a fairly easy and straightforward and you will essentially automatically pass it. Recent census numbers indicate the medium income in California for a family of four is approximately $80,458.
That being said, timing can play a key factor in successfully passing the Bankruptcy means test. The means test looks at your income received for six months prior to filing for bankruptcy. In other words, if you file bankruptcy in November you would calculate your income from May through October and compare it to medium in your state. An important thing to note when calculating your income is that you must count all income whether it be income, or otherwise, such as child support, bonuses, settlements, or profits from the sales of personal items.
TYPES OF BANKRUPTCY
Chapter 13 Bankruptcy
For High Income and Asset Owners
Chapter 11 Bankruptcy
For Businesses and Corporations
Foreclosure Prevention
For Struggling Homeowners
Passing the Means Test With a High Income
If your income is higher than those with your same family size you can still successfully pass the means but it will require a bit more work. The means test looks at your income but it also looks at certain expenses and deducts those qualified expenses from your income prior to the comparing your income to the medium income. Qualified expenses can include:
- Mortgage payments, auto loans, and other secured debts;
- Insurance expenses, including, health, home, and life insurance;
- Taxes
- Spousal and child support;
- Child care and educational expenses; and
- Certain payroll deductions, including contributions to 401k plans
As you can see, if you have a higher income qualifying for Chapter 7 bankruptcy via the means test will require a substantial amount more work. A competent bankruptcy attorney will thoroughly review your expenses and provide advice on how best to pass the means test with a high income.
Some individuals will still not pass the means test, but that doesn’t necessarily mean that those debtor cannot file bankruptcy. While they will be barred from filing a Chapter 7 bankruptcy they can still explore filing a chapter 13 bankruptcy. Your bankruptcy attorney will go over all your options, help you determine which bankruptcy filing is best for you and successfully guide you through the many hoops within the bankruptcy process.
