You may have experienced a stressful event and are now considering bankruptcy. Unfortunately, you may have looked at the government website covering means testing and got even more confused.
The Chapter 7 means test is confusing. You can see there are 6 Chapter 7 means test forms, and one of those forms is nine pages long with many questions.
The purpose of this article is to simplify the Chapter 7 means test, similar to the comparison between Chapter 7 and Chapter 13 bankruptcy.
- What Is The Chapter 7 Means Test
- Chapter 7 Means Test Qualification
- Understand How Chapter 7 Means Test Works In Your State
We have a lot to cover, so let’s dive right in.
What is the Chapter 7 means test calculator?
A Chapter 7 means test calculator helps you estimate whether you may qualify for Chapter 7 bankruptcy. Chapter 7 bankruptcy is less costly than Chapter 13 bankruptcy. Many individuals also receive relief from their debt in the form of a discharge in as little as 120 days.
So, how do you qualify by the Chapter 7 means test? Let’s dig right in.
Chapter 7 Means Test Qualification
You can think of Chapter 7 means test qualification in two parts. As stated earlier, the means test helps the bankruptcy court estimate whether you have the means to pay back some of your debts. If you do have the means, you may be able to file a Chapter 13 bankruptcy as long as your debt is below the debt limits.
We will paraphrase the information into the income text and the expenses test.
Part 1: Income Test
If you look at the bankruptcy form, you can see that income is challenging. Someone who is on a W-2 where his/her income hasn’t changed in 10 years may be simple. That said, let’s say someone has 3 jobs that are hourly, and that income fluctuates weekly. In this case, how do you determine his/her annual income for the means test.
The exact language on the form is, “Fill in the average monthly income that you received from all sources, derived during the 6 full months before you file this bankruptcy case.”
In short, if you find your average income from 6 months, and then you annualize that number, what is your estimated annual income?
After you calculate your income, let’s compare it to your state’s allowed income. If it’s lower than that, you may qualify. If not, you may have to move to part 2 of the means test.
Let’s cover an example where you look at the state-allowed income level for your state. How do you find the most up to date income numbers?
- Go to the means-testing government website
- Click open the drop-down under, “Data Required for Completing the 122A Forms and the 122C Forms”
- Select the most recent date
- Click on “Median Family Income Based on State/Territory and Family Size”
Let’s create an example if you had a case filed on February 1st, 2022.
- Household size of 4, Lives in New York, Annual Income $64,000
- You would check the document above, and find that the median income level is $112,424.
As such, you may qualify for Chapter 7 bankruptcy using part 1 of the means test. In this case, you may not have to take the second part, but a qualified bankruptcy attorney can help determine that.
Part 2: Expenses Test
Instead of $64,000 let’s say you have a household income of $120,000. In this case, you may move to part 2 of the means test where you look at household expenses.
Alas, we have another complicated bankruptcy form for part 2 of the means test. The gist is that you may be able to use certain expenses to help you pass the means test?
The document above should help, but let’s cover a few of those expenses:
- Alimony + Child Support Payments
- Term Life Insurance Premiums
- Secured Payments to Your Car and/or Home
- Childcare Expenses
- Disability and Health Insurance Premiums
- Income Taxes
- Mandatory Employment Deductions (Union Dues)
- Potentially limited charitable contributions.
There may be other certain circumstances where you can deduct items such as personal care, transportation, and food, but you may have to provide proof of expenses if above the standards. In these cases, you can speak with your bankruptcy attorney and check the national standards for potential maximum amounts.
Understand How Chapter 7 Means Test Works In Your State
Now that you understand how the Chapter 7 means test and qualification works, let me provide some resources that would be helpful specific to your state. By looking at these articles, you should be able to find near up-to-date figures for the means test numbers in your state and state specific bankruptcy means test information.
Chapter 7 bankruptcy can provide legal debt relief for those who need assistance from a financial hardship. It is often less costly than Chapter 13 bankruptcy, and it may provide faster debt relief. The Chapter 7 means test helps you estimate your qualification.
That said, Chapter 7 bankruptcy can result in losing belongings, so you may want to consider the pros and cons. For example, many people can keep their belongings due to bankruptcy exemptions. Regardless, a qualified bankruptcy attorney can help you go through the details.