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.