Bankruptcy Means Test’s Murky Waters

When massive changes to the bankruptcy law were implemented in 2005, the means test was designed to help clarify who qualifies for Chapter 7 bankruptcy, especially amongst high income debtors. Using “currently monthly income” was supposed to be the key to deciding if a debtor financially qualified for Chapter 7 bankruptcy; but now the courts are split on what exactly constitutes monthly income. Generally speaking, monthly income is determined by adding all income received in the six month period preceding a bankruptcy filing and dividing it by 6 (i.e. six months).

But some bankruptcy courts have not only included income received; but also include income earned (whether it is received or not) to determine the monthly income of a debtor filing for bankruptcy. This generally would not affect a debtor working a regular job; but has huge implications for the bankruptcy filings of self-employed debtors who may invoice clients; but not receive the money until later.

For example, if a debtor filed for bankruptcy and had earned $600 a month; but only actually received $300 per month in the last six months, a bankruptcy court might decide that the debtor’s income was $900 per month or $300 per month depending on how the judge defines monthly income. This discrepancy could mean the difference between the debtor qualifying for Chapter 7 bankruptcy or having their case dismissed. If you’re a debtor considering Chapter 7 bankruptcy and have earned; but not received some income speak with a bankruptcy attorney to determine how this may affect your Chapter 7 bankruptcy filing.

By | 2017-12-13T02:25:47+00:00 January 7th, 2009|Chapter 7 Bankruptcy|Comments Off on Bankruptcy Means Test’s Murky Waters