Bankruptcy involves a very thorough review of your financial situation.
An icky but necessary process. Obviously you and your attorney need to
examine your broken balance sheet in order to know what needs to be fixed
and how to fix it. Part of that process will be determining whether or
not you are qualified to file Chapter 7 bankruptcy through a means test.
Simply put, a means test is a standard measure of income and expenses,
used to demonstrate a person’s anticipated ability or inability to
repay their debt
Working with a qualified attorney, you and your spouse will need to complete
Bankruptcy Form 22A “Chapter 7 Statement of Current Monthly Income
and Means-Test Calculation”. The form looks similar to a standard
tax form, with specific questions pertaining to income. You will be asked
to report income from all sources, including salary, wages, interest,
rent and unemployment.
If your household income is less than the median family income for a family
of your size in your state, then you qualify for Chapter 7. If your income
exceeds the median income for your state, then you and your attorney will
need to review your household expenses to further investigate whether
or not you are qualified to file Chapter 7.
To calculate your deductions from income, the court follows the Standards
of the Internal Revenue Service. The national standards for food, clothing
and other items as well as healthcare are combined with local standards
such as housing, utilities, transportation, taxes, payroll deductions,
term life insurance, court-ordered payments, some education, childcare,
healthcare, telecommunications, etc.
Your income and deductions are multiplied to show a five-year projection.
If it appears that your income does not exceed your expenses by about
$6500 (for a five year period), then you may file Chapter 7. If your income
exceeds your expenses by more than $10,950 (over five years), then you
may not file Chapter 7.
As you can see, it is really important that you review the details of the
form with a qualified attorney. He or she will be able to help you remember
where every penny you earn is spent. Your attorney will help you make
sure you are exhausting your options so that you can make an informed
decision about filing.
If you do not qualify for Chapter 7, don’t feel discouraged. It may
be an indication that reorganizing your debt under Chapter 13 is a better option.