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Man determining bankruptcy eligibility

After losing everything, I went on a quest to find out how money really works, how I could get control of it, and how I could have confidence in handling it.

—Dave Ramsey

 

 

 

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Means Test

The new bankruptcy code’s means test is complicated. Get ready to do some math.

The means test uses a government-produced table of household median income and average expenses in its calculations. Sparber Rudolph Annen’s  bankruptcy attorneys can help you figure out the means test’s applicability to your specific circumstances.

Below is a simplified explanation of the means test.

  1. Median Income: Compare your average monthly income for the last six months to the State Median Family Income by Family Size chart. If your income is less than the applicable figure for your state and family size, you “pass” the means test and can file a Chapter 7 bankruptcy.

    Your income being above the median does not mean you cannot file a Chapter 7. It means you go on to step two.

  2. Disposable Income: Figure out your disposable income over the next five years by estimating your income and subtracting your living expenses (using the government supplied table of allowed expenses. Multiply that figure by 60.

    1. If that number is below $6000, you “pass” the means test and are eligible to file Chapter 7.

    2. If that number is above $10,000, then the bankruptcy court presumes that you make enough money to file under a Chapter 13, thus paying back more money to your creditors.

    3. If that number is between $6000 and $10,000, then you to calculate 25% of your outstanding unsecured, non-priority debts.

      1. If your disposable income (as calculated above) is greater than 25% of your outstanding unsecured non-priority debt, then again the court presumes you can pay back some of your creditors and you can file a Chapter 7 only by showing special circumstances to the court.

      2. If your disposable income is less than 25% of your unsecured non-priority debt, then you will be eligible to file a Chapter 7.

As you can see, this test is complex and requires an understanding of the rules concerning how the means test calculates your income. These rules include specifications as to which debts are classified as unsecured and non-priority.

Even if you pass the means test, the bankruptcy trustee overseeing your case can still raise the issue of bankruptcy abuse if he or she feels the circumstances of your particular bankruptcy case warrants it.

Sparber Rudolph Annen’s bankruptcy attorneys can help you figure out whether or not you are eligible to file Chapter 7 under the new bankruptcy code’s means test.

Contact us today to schedule an appointment to see how the means test of the new bankruptcy code affects your eligibility.