Fail the Means Test and Still File Chapter 7 Bankruptcy?
Some people who fail the Means Test aren’t satisfied with the option of filing for a Chapter 13. There is still a chance that you can file for a Chapter 7 bankruptcy but you’ll have to prove that you have a special circumstance that requires a review and is an exception to the rule or you’ll have to work around the Means Test.
Review the following with your bankruptcy attorney from Allmand Law to see if any one of these situations apply:
- Timing is very important in a bankruptcy case. If for some reason the Means Test reviewed your finances when you had more income and now you have less (i.e. a job loss), then waiting a few months will give you a lower mean income and you may then pass the Means Test.
- If you don’t have health insurance then getting it before you attempt the pass the Means Test is a good idea. Health insurance for you and your dependents can be deducted, because it is considered a necessity, and can lower your income and boost your expenses.
- How many people live in your house? The Means Test looks at income based on how many people live in the same household, not just immediate family. You may or may not be able to use this to your advantage.
- If you do file a Chapter 13, and your situation changes will you be able to convert it to a Chapter 7 at a later date?
Contact a Bankruptcy Attorney to learn more about Bankruptcy Means Test
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Do You Have to Pass the Bankruptcy Means Test to File Chapter 7?
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.
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Do I Make Too Much Money To File Chapter 7 Bankruptcy?
For debtors considering Chapter 7 bankruptcy, determining if their income level makes them eligible for Chapter 7 bankruptcy involves taking a “means test.” Typically, debtors who earn above the median income level for their family size must file Chapter 13 bankruptcy .
Median Income For Texas
The median income for Texas is:
- One person: $38,545
- Two people: $54,908
- Three people: $57,053
- Four people: $66,400
What this means is that if you are a single person or a one person household earning less than $38,545 your income qualifies you for Chapter 7 bankruptcy. Or if you are a two person household, (example: parent/child) you would qualify for Chapter 7 bankruptcy with less than $54,908 in income. If you earned more than the median income, even if it was just by $50 you may need to file Chapter 13 bankruptcy.
For Special Cases
However, in some cases debtors who earn more than the median income are eligible to file Chapter 7 bankruptcy if they have other large expenses like a mortgage, car payment, medical bills , etc. It is important to go to a skilled bankruptcy attorney who can analyze your situation and make a recommendation on which chapters of bankruptcy your qualify for.
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How Do You Know If You Qualify for Chapter 7 Bankruptcy?
Chapter 7 bankruptcy eliminates unsecured debt such as medical bills, credit card debt, and payday loans. In order to understand whether you qualify is by reviewing your eligibility factors. The most effective way to learn if you qualify includes discussing your situation with an experienced bankruptcy attorney.
Meeting qualifications of the means test and providing proof of completion of credit counseling are a couple of factors to review. There are a number of requirements to meet in order to file and obtain a successful discharge
from debt. Yet, many people learn quickly they do qualify and meet such requirements.
This reviews the situation of the debtor regarding assets, debt, household size, and monthly income. The test also gives some insight on possible eligible exemptions.
State income requirements
Each state has income guidelines for Chapter 7. Also known as the median income level for the state, if your income is below this amount you may qualify to file.
Complete credit counseling and debtor education courses
Credit counseling is required prior to filing bankruptcy and debtor education should be completed before debt gets discharged. These courses can be completed online or by phone and there are agencies approved by the court to provide each session.
If your income is considered too high you may qualify for a court-approved repayment plan in Chapter 13. When you file your petition proof of completion of credit counseling may be required. If debtor education is not completed before your case is closed, your debt may not be granted a discharge.
Are You A High Income Debtor? You May Qualify For Chapter 7 Bankruptcy
High income debtors who might otherwise not qualify for Chapter 7 bankruptcy may still be able to liquidate their debts if the majority of their debts are non-consumer debts. In an effort to make sure that entrepreneurs felt free to take risks in business, the bankruptcy code was written in a way that high income individuals with mostly non-consumer debts incurred in the course of business would be able to discharge their debtors in Chapter 7 bankruptcy much like individual debtors with consumer debts. How do you know if your debt is a non-consumer debt? Let’s take a look at some examples of what non-consumer debts may look like:
- If you’re a high income debtor and have credit card debt incurred to buy equipment and supplies for your business, you may be able to discharge those debts in Chapter 7 bankruptcy. For example: If you purchased computers, printers and desks for your office on a credit card those debts may be discharged in Chapter 7 bankruptcy even if you have a high income. On the other hand, if you incurred debts on a credit card remodeling your personal residence because you wanted to resell it later at a higher price, that debt may not be dischargeable in Chapter 7 bankruptcy if you are a high income debtor who cannot pass the means test to qualify for a personal Chapter 7 bankruptcy.
- If you took out a personal loan and used that loan to purchase inventory for your business, even if you are a high income debtor you may be able to discharge that debt in Chapter 7 bankruptcy. On the other hand, if you took out a personal loan to pay your mortgage because you didn’t make any profits from your business for a few months, that debt might not be dischargeable in Chapter 7 bankruptcy if you are a high income debtor who cannot pass the means test to qualify for a personal Chapter 7 bankruptcy.
Remember, debtors who earn over a certain amount of income may not qualify for a personal Chapter 7 bankruptcy; but if the vast majority of their debts are non-consumer debts, then they may be able to still file for Chapter 7 bankruptcy.