Bankruptcy Means Test
Bankruptcy "Means Test"
The bankruptcy "Means Test" is a mathematical calculation that on the surface is intended to limit who can file Chapter 7 Bankruptcy. In short, the "Means Test" determines what is the income limit for Chapter 7. The purpose of the "Means Test" is to measure your income against your monthly expenses. To that end, the "Means Test" is used to determine whether you can afford to pay back none, a portion of or all your debt in a Bankruptcy case.
Indeed people often question chapter 7 vs chapter 13 bankruptcy. Initially, we have to figure out whether a bankruptcy will help you. To put it another way, we first analyze your debt. We especially look at the type of debt and total balance owed. Then we assess your income. This analysis includes reviewing your income now and over the past six months. Next we discuss your assets including real and personal property.
In order to determine your qualifications for a chapter 7 bankruptcy we have to calculate the "means test". That is the method used by the United States Bankruptcy Code to calculate your income and expenses for the six months prior to filing bankruptcy.
Qualifying for Chapter 7 Bankruptcy-Income and Assets
A Chapter 7 Bankruptcy (fresh start) is one of the most powerful tools to get you and your family out of debt. A Chapter 7 is intended to wipe out as much debt as possible without a repayment plan. However, a Chapter 7 is appropriate only if it makes sense for your financial situation and if you pass the Means Test.
In the first place, there are generally two (2) factors which allow you to file a Chapter 7 bankruptcy. The first factor considers your income when compared against other, similar household incomes. The other allows you to keep most of your property when you file. To this end, it is important to look at paystubs and other sources of income. In fact, your income determines whether you can file a Chapter 7 bankruptcy and may dictate the type of bankruptcy you qualify to file.
In contrast, a Chapter 13 bankruptcy allows to you pay off your debts at an affordable payment over a 3-5 year period of time. You can file a Chapter 13 case regardless of whether you pass the means test or not. Chapter 13 bankruptcy is complex. Therefore you need to speak with an attorney who knows Chapter 13 Bankruptcy San Diego Ca.
Applying the Bankruptcy Means Test
As noted above, to qualify for a Bankruptcy case, we must analyze your income. In brief, the means test is merely a mathematical tool to analyze and compare your individual income against other bankruptcy filers.
In particular, there are 2 income thresholds which must be considered in a bankruptcy case. First we identify your household size. Then, determine the median income for your household size in your state.
To begin with, the means test imposes a mechanical 6-month look back at all income into your household. In particular, if your income is below the state median income for a same-sized household, you pass the means test!
Keep in mind that for the means test the definition of income is "gross income". That is, median income is calculated based on wages/pay BEFORE any deductions. If you are an employee look at your paystub and find your pay before any taxes, health insurance and retirement withholdings are subtracted. For self employed individuals generally gross business income is used. Other sources of income like pension, unemployment and spousal support is also included.
So combine all of your sources of income and determine your household size. Then you can figure out if you are above or below the median income for your state using this chart by the Department of Justice.
Below Median Income-No means test required.
If you are below "Median Income" based on your current monthly income, the means test is not required. To repeat, if you are below the median income for your household size, then you qualify (from an income-standpoint) to file a Chapter 7 Bankruptcy case! In other words, the lower your income, the more likely it is that you are a perfect candidate for Chapter 7 bankruptcy.
Above Median Income-Means test required.
Do not panic if you are above median income because most people still pass the means test. Even people who are well above median income can qualify for a Chapter 7 bankruptcy. However, a far more in depth analysis must be performed when household income is above median. Specifically, (you guessed it) the "Means Test" must be calculated.
In short, the "Means Test" is a mathematical formula that compares your gross monthly income to your household expenses. But there is a catch. Your household expenses are based on IRS allowed standards. While there is some flexibility with deductions and expenses
Specifically, the higher your income, the more complex it is to work to qualify you. However, even if you do not believe you “pass” the means test, you can still file a Bankruptcy case. Of course we would like to file a Chapter 7 to wipe out as much debt as possible. While you may believe you cannot overcome the "Means Test" frequently there are items overlooked. To this end contact an experienced Chapter 7 Bankruptcy Attorney San Diego to review your "Means Test" calculations.
Similarly, the second part of the test is authentic and compares your actual income with your actual monthly expenses. As can be seen from this simple equation, most people qualify to file a Chapter 7 Bankruptcy case!!!! The simple reality is most people do NOT earn enough money to pay for their normal monthly expenses. In fact, these are the people who benefit the most from a Bankruptcy filing.
A. I Passed the Bankruptcy Means Test
As I have noted, if you pass the Means Test then you are on your way to wiping out your debt in a Chapter 7 Bankruptcy! Most importantly, the Chapter 7 will wipe out unsecured debt such as credit cards, payday loans, medical bills, and past due rent.
Now that you pass the Means Test, call us NOW at (619) 574-0551 and get a Bankruptcy case to wipe out your debt!! Under those circumstances, it is the best time for you to meet with a San Diego Bankruptcy attorney such as the Law Offices of Mark L. Miller.
B. I Did Not Pass the Bankruptcy Means Test
On the contrary, if you think you do not pass the Means Test, or your initial look at the Means Test confuses you, DO NOT FEAR!!! Even if your numbers are “off” our job is to offer you the procedures, alternatives and risks to filing a Bankruptcy case. We want to get you out of debt. So long as you understand the information required by the Means Test, we find that most people qualify even if they initially believed they did not!
With attention to details, reviewing overlooked expenses and other factors, we can qualify most people who may not believe they can file a Chapter 7 bankruptcy case.
The answer to "What is the income limit for Chapter 7" depends!
As shown above, the Means Test is just the beginning of the analysis for your Bankruptcy Case. It must be remembered that the Means Test has many components and a Bankruptcy Attorney San Diego can best help you work through the test.
In a word, the Means Test is one part to getting out of debt. Balanced against paying off your debt over time, it definitely benefits most people to consult with a lawyer and at least consider filing for Bankruptcy protection.
The time to act is now. You need a Chapter 7 Bankruptcy Attorney San Diego like the Law Offices of Mark L. Miller. Let us work up your Means Test and qualify you for a Bankruptcy Case today! Contact us today for your free consultation and means test analysis.