- posted: Sep. 15, 2024
- Bankruptcy
An individual debtor who wishes to discharge of debts under Chapter 7 of the Bankruptcy Code must usually pass the means test. This is a device intended to prevent people with higher incomes, who could potentially repay a portion off their debts, from misusing Chapter 7. Instead, these debtors are required to use Chapter 13. The means test thus can be a significant hurdle to overcome.
The means test begins by comparing the debtor's income to the median income for a household of the same size in their state. The test averages the debtor's monthly income over the six months preceding the bankruptcy filing. If that figure is below the state median, the debtor automatically pass the means test and is eligible to file for Chapter 7.
However, if the debtor's income exceeds the state median, they can proceed to the second part of the means test, which involves calculating allowable expenses. These include standard living expenses, such as housing, utilities, food, transportation and healthcare, as well as other costs, such as payments on secured debts like a mortgage or car loan, child support or alimony obligations. The standard living expenses that can be deducted may be predetermined based on schedules developed by the Internal Revenue Service (IRS). By deducting these allowable expenses from total income, the debtor calculates his or her disposable income. If the disposable income is below a certain threshold, the debtor passes the means test and can proceed with Chapter 7 bankruptcy.
Certain debtors are exempt from the means test. For example, if more than half of the debtor's debts are business-related rather than consumer-related, they do not have to complete the means test. Additionally, if the debtor is a disabled veteran and incurred most of their debt while on active duty, they are also exempt from the test.
In some cases, delaying the bankruptcy filing can be beneficial. If a debtor has experienced a recent drop in income, waiting a few months may lower their average monthly income, potentially bringing it below the state median and allowing them to pass the means test without needing to proceed to the second stage.
The means test is a critical but complex part of the Chapter 7 process. An experienced bankruptcy attorney can be of great assistance in helping you meet the test or in suggesting alternative plans.
The Law Office of Gregory M. Messer PLLC in Brooklyn can review your debt situation and advise you about meeting the Chapter 7 means test. Call {PHONE) or contact us online to schedule a free initial consultation.
- posted: Sep. 15, 2024
- Bankruptcy
An individual debtor who wishes to discharge of debts under Chapter 7 of the Bankruptcy Code must usually pass the means test. This is a device intended to prevent people with higher incomes, who could potentially repay a portion off their debts, from misusing Chapter 7. Instead, these debtors are required to use Chapter 13. The means test thus can be a significant hurdle to overcome.
The means test begins by comparing the debtor's income to the median income for a household of the same size in their state. The test averages the debtor's monthly income over the six months preceding the bankruptcy filing. If that figure is below the state median, the debtor automatically pass the means test and is eligible to file for Chapter 7.
However, if the debtor's income exceeds the state median, they can proceed to the second part of the means test, which involves calculating allowable expenses. These include standard living expenses, such as housing, utilities, food, transportation and healthcare, as well as other costs, such as payments on secured debts like a mortgage or car loan, child support or alimony obligations. The standard living expenses that can be deducted may be predetermined based on schedules developed by the Internal Revenue Service (IRS). By deducting these allowable expenses from total income, the debtor calculates his or her disposable income. If the disposable income is below a certain threshold, the debtor passes the means test and can proceed with Chapter 7 bankruptcy.
Certain debtors are exempt from the means test. For example, if more than half of the debtor's debts are business-related rather than consumer-related, they do not have to complete the means test. Additionally, if the debtor is a disabled veteran and incurred most of their debt while on active duty, they are also exempt from the test.
In some cases, delaying the bankruptcy filing can be beneficial. If a debtor has experienced a recent drop in income, waiting a few months may lower their average monthly income, potentially bringing it below the state median and allowing them to pass the means test without needing to proceed to the second stage.
The means test is a critical but complex part of the Chapter 7 process. An experienced bankruptcy attorney can be of great assistance in helping you meet the test or in suggesting alternative plans.
The Law Office of Gregory M. Messer PLLC in Brooklyn can review your debt situation and advise you about meeting the Chapter 7 means test. Call {PHONE) or contact us online to schedule a free initial consultation.
