Gentle Reminders About the Means Test

As a result of Congress passing the Bankruptcy Protection Act of 2005, most individuals must now pass the bankruptcy means test to qualify for Chapter 7. Some disabled veterans and filers who incurred most of his or her debt from operating a business may be exempt from having to complete a means test.

For a majority of the other debtors seeking to file Chapter 7 bankruptcy, the first part of the means test compares his or her average monthly income for the six months before filing with his or her state’s median family income. An income less than or equal to the state median will allow him or her to file for Chapter 7, but there remains the chance that a bankruptcy trustee may later find that the debtor has enough income after paying allowable expenses to repay creditors in a Chapter 13 repayment plan.

The bankruptcy means test uses a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. However, you should know that people with significant incomes can still qualify for Chapter 7 bankruptcy if he or she also has a lot of expenses, such as a high mortgage payment, or if the debtor has a large family. Deducting specific monthly expenses from your current monthly income determines your monthly “disposable income.” The lower your amount of disposable income, the more likely you are to qualify for Chapter 7.

It is also important to keep in mind that just because you qualify under the means test does not necessarily mean you should file for Chapter 7 bankruptcy. A qualified Maryland or Washington DC bankruptcy lawyer can identify circumstances unique to your situation that might make one chapter more advantageous than another. If you are filing Chapter 7, you will most certainly want legal representation in advance of the 341 Meeting of Creditors, which I will discuss tomorrow.

Law Firm of Kevin D. Judd – Washington DC bankruptcy attorney

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