Means test

Recently, I have been receiving phone calls about the means test and income levels. Whenever someone contemplates filing for bankruptcy, they have to be aware that their level of income will be taken into consideration as to whether they would qualify for filing a Chapter 7 bankruptcy case. Obviously, the lower your income the more likely you will not have any issues regarding qualification. The means test looks at a debtors prior six months of income and after calculating a yearly income figure from those six months of income, a comparison is made with the median income figure for the size family that the debtor has. If the yearly figure falls under the median income, then the debtor qualifies under the means test to file a Chapter 7 case. If the figure falls above, then the means test portion of a bankruptcy petition must be completed. When a figure exceeds the median income, does that mean a debtor is denied the ability to file? No, not necessarily. It depends on whether, after entering all of the allowed deductions from the income figure, the means test shows the ability to pay the debt. Sometimes it does, sometimes it does not. The best way to determine whether you can pass the means test is to contact a qualified bankruptcy attorney and have him or her run the numbers. Then and only then, will you know. See my post below for additional information regarding the means test.

Means testing and your income

When a debtor calls a bankruptcy attorney, one of the first questions that attorney may ask is are you employed and do you have an income. If a debtor is employed the second question is how much do they earn. The reason this question is asked is because all debtors must complete the means testing provision of the bankruptcy code. Means testing is the hurtle that must be cleared if someone wants to file Chapter 7 bankruptcy. It is the qualification gauge used to see whether a debtor has the “means” to pay his or her creditors the debts owed, even if it is a small amount. This major change in the bankruptcy code was established back in the 2005 Bankruptcy Reform Act. When bankruptcy attorneys review a debtor’s income information, they compare it to the median income figures that are taken from IRS regulations. It is interesting to note that over the past year, median income figures have actually fallen for some categories.
Median income figures are categorized based on the number of people living in a household. For example, based on the latest IRS figures, the median income for a household of one person is $40,691. In 2008 this figure was $39,253, an increase of $1,438. However, if your household has four people, the income figure currently is $68,502 and in 2008 it was $68,908 which is down by a few hundred dollars. What this tells me is that overall income figures show some sign of having fallen over the past year or so. This also means that for a household of four, it is now a little more difficult to get past the means test, that is provided your income has remained the same. The major thing to remember about the means test is that the higher the income, the harder it will be to qualify for a Chapter 7 bankruptcy filing. Of course the reverse is true that if your income remains steady, but overall income levels rise, it becomes easier to file.
The bottom line here is that all debtors who are contemplating filing for bankruptcy protection should contact a qualified bankruptcy attorney to see how they fare with regard to the means test.