To qualify for Chapter 7 bankruptcy, individuals with primarily consumer debts must pass the Chapter 7 means test. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) first introduced the means test in 2005.The purpose of the means test is to determine whether you have the financial ability to pay back a significant portion of your unsecured debt, in which case you are not eligible for Chapter 7. Means testing is an especially complex aspect of bankruptcy law, making it important to work with a qualified Maryland and Washington DC bankruptcy attorney throughout the entire bankruptcy process.
The first part of the Chapter 7 means test looks at the income you received during the six months right before filing. If your annualized gross income is below the median income for your household size, then you automatically pass the means test and are eligible for Chapter 7. If your annualized gross income is more than the median income, however, then you must complete the second part of the means test. Most sources of income are subject to means testing, though there are a few exceptions. An experienced Washington DC and Maryland bankruptcy lawyer can identify what income sources need to be included on your means test and determine whether you are above or below the applicable median family income.
The second part of the Chapter 7 means test looks at household expenses. You may deduct certain expenses on the means test, such as payroll taxes, health insurance, rent/mortgage payment, ongoing charitable contributions and child support. For some expenses, you get to deduct real-life expenditures; for other expenses, you must deduct the IRS standard. After you deduct all allowed expenses from your monthly gross income, the resulting amount is your monthly disposable income. If your monthly disposable income on the means test is above a certain amount, then the case is presumed to be an abuse, and you can only receive a Chapter 7 discharge if you successfully rebut that presumption.
A Chapter 7 debtor can rebut the presumption of abuse by demonstrating special circumstances. Below are some reasons you might be allowed to receive a Chapter 7 discharge even if you do not pass the means test:
- Recent or anticipated job loss or other reduction in income
- Separation from spouse
- Going on long-term disability leave
- Unavoidable increases in allowed expenses
These are just a few examples. You may be required to provide documentation that demonstrates how your income and/or expenses have changed, and you might need to file an affidavit with the bankruptcy court explaining your special circumstances. A knowledgeable Washington DC and Maryland bankruptcy attorney can guide you through the entire means testing process and help you take all necessary steps to rebut the presumption of abuse.
It is important to be both thorough and accurate when completing the means test. If you are considering Chapter 7 bankruptcy, contact a Maryland and Washington DC bankruptcy lawyer today to learn about all of your bankruptcy options.