A sudden drop in income, such as a layoff, can affect your results. Because the calculation looks backward, high earnings from earlier months may still count against you. Waiting a short time before filing sometimes lets lower recent earnings shift the outcome in your favor. An attorney can help you find the right timing.
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The Chapter 7 Means Test
We Can Help The Chapter 7 Means Test
When the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect, it prevented just anyone from qualifying for Chapter 7 bankruptcy. It created a maximum income threshold, otherwise known as the “means test,” which consumers must pass to file under Chapter 7. Not everyone passes the means test, and with any attorney, you can make many errors. If you are considering bankruptcy, you always want the help of a Chapter 7 bankruptcy attorney. Our team at Whitten & Whitten is prepared to guide you through the process.
What is the Means Test?
The means test disqualifies people who earn enough income that the law assumes they should be able to pay off their debts. In short, if your household income is too high, you cannot file a Chapter 7 bankruptcy case. This test considers all sources of income you receive and uses the average monthly income for the past six months. This can include regular wages, rental income, bonuses, commissions, benefits, and more.
How Does the Means Test Work?
The test then compares your gross income against the median income for your specific state of residence and household size, as reported by the Department of Justice (DOJ). Some states can have a median income as low as $53,978 for a single-person household (Mississippi), and as high as $166,598 for a four-person household (District of Columbia).
The Means Test in Indiana
If your gross income is less than the applicable amount, you pass the means test, and you can file a Chapter 7 bankruptcy case. However, if your gross income is higher than the median income, you do not automatically fail the test, and all hope of a Chapter 7 case is not lost.
An experienced Chapter 7 attorney knows how to determine your disposable income, which you might be able to use to pass the means test. Your lawyer will deduct qualified expenses from your gross income to determine your disposable income. Some costs are based on living standards for your area, while others reflect your actual expense amounts. Some fees might include the following:
Mandatory paycheck deductions, tax obligations, insurance premiums, mortgage or auto loans, court-ordered payments, healthcare costs, childcare costs, required education costs of a disabled child, and expenses from caring for an older, ill, or disabled adult in your household.
You do not want to risk overlooking any possible expenses that you can deduct from your gross income to help you pass the means test. You will pass if your income minus qualified costs is lower than the reported median income. If your income is still too high, you will need to explore other options for debt relief, such as Chapter 13 bankruptcy.
Let an Experienced Chapter 7 Bankruptcy Lawyer Help
If you are wondering whether you qualify for Chapter 7 bankruptcy, you should not wait to discuss the matter with the legal team at Whitten & Whitten. We can advise you regarding the means test and the bankruptcy process, so please contact us today to schedule a consultation.
FAQs About The Chapter 7 Means Test
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