If you are considering filing for Chapter 7 bankruptcy, you may need the help and expertise of a seasoned and competent bankruptcy lawyer. Many people compare Chapter 7 to Chapter 13.
However, before you can file for Chapter 7 bankruptcy, you first need to pass one hurdle—the Chapter 7 means test. Why do people want to qualify for Chapter 7 bankruptcy? It’s often more affordable and you can rebuild credit quite quickly after bankruptcy discharge.
This means test looks at your income, expenses, household size, consumer debts, and valuable assets (i.e., personal vehicles or real estate). This can determine if you meet the guidelines and can file for Chapter 7 bankruptcy.
What is the Chapter 7 bankruptcy means test?
Let’s dive into some more of the details regarding, chapter 7 means test. If your income is less than the median of the state you live in, you can file for Chapter 7 bankruptcy. It is important to note that each state has different means of testing requirements. If you want specific calculations, your bankruptcy lawyer can help. You can see the state articles below to see the bankruptcy means test data in your state.
If you are earning more than the median, you need to continue with the means test. Even if you don’t meet the requirements, you can still file for bankruptcy. However, you might need to look at Chapter 13 bankruptcy or other bankruptcy options, depending on what your bankruptcy lawyer recommends.
What is the bankruptcy means test in my state?
Each state has its own means testing based on household size, state, and income. You can check the means test for cases filed on or after 5/15/2021 here. You can also see the following state’s bankruptcy means test information in the states below.
- Alabama Bankruptcy Means Test
- Alaska Bankruptcy Means Test
- Arizona Bankruptcy Means Test
- Arkansas Bankruptcy Means Test
- California Bankruptcy Means Test
- Colorado Bankruptcy Means Test
- Connecticut Bankruptcy Means Test
- Delaware Bankruptcy Means Test
- District of Columbia Bankruptcy Means Test
- Florida Bankruptcy Means Test
- Georgia Bankruptcy Means Test
- Hawaii Bankruptcy Means Test
- Idaho Bankruptcy Means Test
- Illinois Bankruptcy Means Test
- Indiana Bankruptcy Means Test
- Iowa Bankruptcy Means Test
- Kansas Bankruptcy Means Test
- Kentucky Bankruptcy Means Test
- Louisiana Bankruptcy Means Test
- Maine Bankruptcy Means Test
- Maryland Bankruptcy Means Test
- Massachusetts Bankruptcy Means Test
- Michigan Bankruptcy Means Test
- Minnesota Bankruptcy Means Test
- Mississippi Bankruptcy Means Test
- Missouri Bankruptcy Means Test
- Montana Bankruptcy Means Test
- Nebraska Bankruptcy Means Test
- Nevada Bankruptcy Means Test
- New Hampshire Bankruptcy Means Test
- NJ Bankruptcy Means Test
- New Mexico Bankruptcy Means Test
- New York Bankruptcy Means Test
- North Carolina Bankruptcy Means Test
- North Dakota Bankruptcy Means Test
- Ohio Bankruptcy Means Test
- Oklahoma Bankruptcy Means Test
- Oregon Bankruptcy Means Test
- Pennsylvania Bankruptcy Means Test
- Rhode Island Bankruptcy Means Test
- South Carolina Bankruptcy Means Test
- South Dakota Bankruptcy Means Test
- Tennessee Bankruptcy Means Test
- Texas Bankruptcy Means Test
- Utah Bankruptcy Means Test
- Vermont Bankruptcy Means Test
- Virginia Bankruptcy Means Test
- Washington Bankruptcy Means Test
- West Virginia Bankruptcy Means Test
- Wisconsin Bankruptcy Means Test
- Wyoming Bankruptcy Means Test
Get Up To Date Bankruptcy Means Test Data
Each of these articles is very helpful, but these may have slightly outdated numbers (Ascend does a great job keeping up). So, you can do the following to check the latest bankruptcy means test data:
- Click here: https://www.justice.gov/ust/means-testing
- Next, click on the drop down under “Data Required for Completing the 122A Forms and the 122C Forms” and select the latest date.
- Click Go
- You would then click on the link withh the text, “Median Family Income Based on State/Territory and Family Size“
What is the purpose of the bankruptcy means test?
The means test’s primary purpose is to disqualify individuals with high incomes from wiping out their debts by filing for Chapter 7 bankruptcy. Those who fail the means test will not qualify for a Chapter 7 discharge (the order that wipes out dischargeable debt). Instead, they may file for Chapter 13 for bankruptcy relief if they are under the debt limits.
Chapter 7 Means Test Form
The means test compares the individual’s average monthly income for the past six months against the state’s median income while considering expenses and the local and national standards for some living expenses. The test determines if the individual still has disposable income left (after living costs) that they can use to pay their creditors.
If the income is low, most can pass the means test with just a few simple steps. If the individual’s gross income is higher than the state’s median, the remaining portion of the form needs to be completed—the part where the living expenses are considered—to determine if they pass.
Who passes the means test?
The answer will depend on whether the person’s income is above or below the state’s median income level. It is also important to remember that you will use the state median income based on your household size.
For instance, if you are a family of five, you need to look at the median income for five in your state. The U.S. Trustee Program website has all the information on median income figures, and all the other required means test multiples.
How to Pass Means Test with High Income
You may still qualify for Chapter 7 bankruptcy even if you are above the median guidelines. For example, there is a part 2 of the means test. You can find the bankruptcy forms below.
Even if your average income is above the state’s median income, you won’t fail the test automatically. As mentioned earlier, you need to complete the means test form. The form will require you to provide figures for your expenses.
When providing your expense figures, you need to keep in mind the following:
Use IRS standard expense figures
When determining your disposable income, the means test uses the local and national standards in your area for specific living expenses such as utilities, food, gas, rent, and clothing. Regardless of your actual expenses for those items are higher than the standard allowed, you can take advantage of them to reduce your disposable income.
Actual expense figures can be used for some things
The actual cost can be deducted on the means test for expenses like a car payment, health insurance, taxes, and child care. For example, if you have a high income but a significant mortgage expense, you can sometimes pass due to the ability to deduct the said amount on the means test.
How can one avoid making mistakes on the means test?
You first need to show you have no means to repay your creditors by taking and passing the means test. The means test comes with specific instructions for each item. However, it is a complex and lengthy form, and it would be a good idea to read it through.
What happens if you miscalculate the household size?
Using the correct household size can have a significant impact on whether you will qualify or not. Calculating the household size can seem straightforward. That said, bankruptcy courts use different approaches to determine who counts as a household member.
Although many courts allow debtors to count all the dependent members living in the household under the “heads on beds” rule, not every court allows it. Since approaches can vary depending on where you live, it is recommended that you consult a knowledgeable bankruptcy attorney before filing your case.
Is the Social Security income required on the bankruptcy means test?
When taking the means test, you can’t count any Social Security benefits you’re receiving for yourself or others, such as a dependent child, as income. It can lower your income significantly, and you’ll have a better chance of passing the test.
You must complete Schedule I: Your Income regardless of the outcome of the means test. Schedule I will show the court the income you are expecting moving forward. As such, you must list your Social Security benefits on that form.
How can you avoid claiming bankruptc means test deductions you are not entitled to?
Taking the means test is a multi-step process. You need to subtract allowed deductions from your income to gauge if you have enough income to repay creditors. Some will be predetermined, while some are actual expense amounts.
However, all expenses cannot be deducted. For example, loan payments and voluntary retirement plan contributions are not deductible. Many debtors also erroneously claim the standard ownership deduction, even if they are not making any lease payments.
Generally, if you own the car free and clear, you can claim the vehicle operating expense but not the car-ownership deduction. To ensure you don’t claim any expenses you are not entitled to, review the instructions for each expense carefully.
Conclusion
If you don’t pass the means test, you may not be able to receive a Chapter 7 discharge. However, you might be able to take advantage of a Chapter 13 bankruptcy. To get guidance on moving forward best, consulting a knowledgeable and competent bankruptcy lawyer is recommended.
