Passing the Chapter 7 Means Test the Easy Way

Most people can pass the means test and qualify for Chapter 7 bankruptcy simply because their income is no more than the “median income” for their state and family size.

If you are considering bankruptcy, this blog can help you find out if you are among the many people whose income easily qualifies them for Chapter 7 “straight bankruptcy.”

The Purpose of the Means Test

Congress’s clear purpose behind the means test was to make it harder for some people to file for Chapter 7 bankruptcy. The idea was that those who have the means to pay a meaningful amount of their debt to their creditors in a three-to-five-year Chapter 13 payment plan ought to do so instead of being allowed to just write off all their debts in a Chapter 7 case.

Pass the First, Income Part of the Means Test and You’re In

The means test is a messy, multilevel test. The good news for most people is that once they pass the first level — comparing their “current monthly income” to the applicable “median family income” — they don’t have to mess with the rest of the test, particularly the complicated expenses portion of the test. If your income is no more than the median, then you can file a Chapter 7 case.

Calculating Your “Current Monthly Income”

This is a very precise definition of “income” and one that can have odd consequences. Here’s how it is calculated.

  1. It is NOT based on something simple like your taxable income for the previous calendar year. Rather, it is based on the precise amount of income you received during the six full calendar months before your case was filed. So, for example, if your case was filed on January 25, 2013, add up every dollar you received during the six-month period from July 1, 2012, through December 31, 2012. After getting the six-month total, divide that by six to come up with a monthly average.
  2. The income to be included for this calculation is not just your “taxable income,” but just about every bit of income you’ve gotten from all sources during that period of time, including irregular ones like child and spousal support payments, insurance settlements, unemployment benefits and bonuses. But exclude all Social Security income, as well as income tax refunds.
  3. Once you have that six-month average — your “current monthly income” — multiply that by 12 for your annual income. Compare that to the median income for Texas for a family your size:

1 EARNER-$40,389 2 PEOPLE-$54,762 3 PEOPLE-$59,276 4 PEOPLE*- $65,932
* Add $7,500 for each individual in excess of 4.
(These median income amounts are valid for cases filed from November 1, 2012, through the next time they will be changed, likely in March or April 2013. Check this website to see if these amounts have been adjusted and to determine the new median amounts.)

Income Not Larger Than the Median Income?

If your annual income, calculated exactly as described above, is no larger than the median income amounts for your family size in the table, then you have cleared the means test hurdle. You can skip the expenses portion of the test.

However, if your income is higher than the median income amount applicable to you, you may still be able to pass the means test at the next level. Then you may still be able to file a Chapter 7 case. See our next blog about that.

Or, to get an answer if you are in the Dallas-Fort Worth metroplex, call Attorney Carrie Weir at 972-772-3083 to schedule a no-obligation, free, confidential consultation. Or contact us here . We will apply the means test to your personal situation and discuss all your options.

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Call Rockwall bankruptcy lawyer Carrie Weir at 972-772-3083 or fill out the contact from below for a free, confidential consultation to discuss your options.

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