Bankruptcy means a test for beginners

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Bankruptcy can be a useful debt relief option when an individual is in real trouble.


Finances and debts can be very stressful. Add financial hardship, and now the burden might seem unbearable. You may now be considering the legal debt relief option of bankruptcy, but have met the means test of bankruptcy.

You verify that the US government means test website and may feel even more confused. Why are there 6 bankruptcy means testing the forms? How the hell can you fill a Complex 9-page form?

The purpose of this article is to simplify the information about bankruptcy means tests to make it understandable to you.

Here’s what we’ll cover:

  1. What is the bankruptcy means test?
  2. Chapter 7 Qualification using resource testing
  3. How does part 1 work?
  4. How does part 2 work?
  5. What Does the Test of Means for Bankruptcy in Your State?

Let’s start.

What is the means test in the event of bankruptcy?

In short, the bankruptcy means test is a qualifying test to see if you can afford to repay some of your debt in the event of bankruptcy. Many people think that the means test is the qualifying test for Chapter 7 bankruptcy.

Chapter 7 bankruptcy is a liquidation bankruptcy, which means the trustee can sell non-exempt assets and distribute the funds to owed creditors. Although this is bankruptcy by liquidation, it does not mean that you will lose property, especially if you are using bankruptcy waivers.

Now Chapter 7 and Chapter 13 bankruptcy are the most common types of bankruptcy, but many people choose Chapter 7 due to the fact that it is less expensive and you can get out of debt in as little as 120 days. . There are advantages and disadvantages to consider, but many people need some sort of relief when they file for bankruptcy.

Now let’s move on to qualifying Chapter 7 using the means test.

Chapter 7 Qualification using resource testing

There are two parts to the Chapter 7 bankruptcy review. Let’s cover both parts.

  1. The first part uses your household income, your household size, and compares it to the median allowable household incomes in your state. If you pass using part 1, you may not have to pass part 2 of the resource exam.
  2. If you are unsuccessful using the first part of the resources test, the second part can use your actual expenses to see if you can qualify even if you are above the median guidelines for your state.

Now let’s go through each part of the resource review.

How does part 1 work?

the bankruptcy form for part 1 is complicated, so we will do our best to explain the test. Basically, the questions in this part attempt to understand your income and how it relates to state-allowed income.

How to calculate income

Income can be tricky. Now, a W-2 income that’s constant and hasn’t changed can be easy, but let’s say you work by the hour and your hours have changed over the year. Let’s say there was a job change and you are now earning more than before. How do you calculate your income on an annual basis?

Let’s see how the bankruptcy form explains the income:

Fill in the average monthly income you received from all sources, derived over the full 6 months prior to filing this bankruptcy case. 11 USC § 101(10A). For example, if you file on September 15, the 6-month period would be March 1 through August 31. If the amount of your monthly income has varied over the 6 months, add the income for the 6 months and divide the total by 6 Fill in the result. Do not include any income amount more than once. For example, if both spouses own the same rental property, enter the income from that property in one column. If you have nothing to declare for a line, write $0 in the space.

Now you can try taking a bankruptcy means test calculator online or a qualified bankruptcy attorney can help you analyze the details, but the goal here is to understand your average income over a 6 month period, then you can annualize it and compare it to the state median income below.

How to Compare Income to State Allowed Income

Once you understand your annualized income, you can now compare it to state allowable income. You can find the newest income cap for Chapter 7 on the US Government website.

here is an example of the most recent data at the time of this writing. Let’s cover an example.

  1. Household size of 4 people in Texas with a household income of $6,000 per month. You annualize that at $72,000 per year.
  2. You check the most recent income limit for this and find that you have to be under $89,196 in Texas to qualify.

In this case, you have a good chance of qualifying for Chapter 7 bankruptcy because you are already below the median household income in Texas.

How does part 2 work?

In the example above, the individual earns $72,000 per year. Let’s say instead that the individual earns $95,000 annually, but has no disposable income.

Does that mean he wouldn’t qualify for Chapter 7 bankruptcy?

Not necessarily.

This is where part 2 of the resource test comes in when using actual spend. The official bankruptcy form part 2 is still super complex, so let’s break it down.

Man overwhelmed to the waist in water; image by Mubariz Mehdizadeh, via Unsplash.com

For example, there are cases where car payments, mortgages, childcare, health insurance, and possibly taxes can help you pass the means test by deducting actual expenses.

Let’s cover some of the expenses you may be able to deduct.

  • Mandatory employment deductions. This can include pension plans, union dues or even uniforms
  • Income taxes
  • Disability and sickness insurance premiums
  • Childcare costs
  • Debt payments for your car and home that are secured
  • Term life insurance premium
  • Child support and alimony
  • Potentially charitable contribution (limited)

There may also be special circumstances where you can deduct items such as food, clothing, personal care, housing and utilities, transportation, etc., but you may be required to provide proof of the expense and you may not be able to claim these deductions.

Additionally, expenses can be limited to the number of people in your household. You can check the current national standards for the maximum potential amounts of expenditure.

How does the bankruptcy means test work in your state?

Every state is different, so it helps to understand how it works specifically for your state. As such, I have found various reputable articles that you can find below that should have income limits for your state and provide state-specific information on the bankruptcy means test, if any.

Alabama Bankruptcy Means Test

Alaska Bankruptcy Means Test

Arizona Bankruptcy Means Test

Arkansas Bankruptcy Means Test

California Bankruptcy Means Test

Colorado Bankruptcy Means Test

Connecticut Bankruptcy Means Test

Delaware Bankruptcy Means Test

District of Columbia Bankruptcy Means Test

Florida Bankruptcy Means Test

Georgia Bankruptcy Means Test

Hawaii Bankruptcy Means Test

Idaho Bankruptcy Means Test

Illinois Bankruptcy Means Test

Indiana Bankruptcy Means Review

Iowa Bankruptcy Means Test

Kansas Bankruptcy Means Test

Kentucky Bankruptcy Means Test

Louisiana Bankruptcy Means Test

Maine Bankruptcy Means Test

Maryland Bankruptcy Means Test

Massachusetts Bankruptcy Means Test

Michigan Bankruptcy Means Test

Minnesota Bankruptcy Means Test

Mississippi Bankruptcy Means Test

Missouri Bankruptcy Means Test

Montana Bankruptcy Means Test

Nebraska Bankruptcy Means Test

Nevada Bankruptcy Means Test

New Hampshire Bankruptcy Means Test

New Jersey Bankruptcy Means Test

New Mexico Bankruptcy Means Test

New York Bankruptcy Means Test

North Carolina Bankruptcy Means Test

North Dakota Bankruptcy Means Test

Ohio Bankruptcy Means Test

Oklahoma Bankruptcy Means Test

Oregon Bankruptcy Means Test

Pennsylvania Bankruptcy Means Test

Rhode Island Bankruptcy Means Test

South Carolina Bankruptcy Means Test

South Dakota Bankruptcy Means Test

Tennessee Bankruptcy Means Test

Texas Bankruptcy Means Test

Utah Bankruptcy Means Test

Vermont Bankruptcy Means Test

Virginia Bankruptcy Means Test

Washington Bankruptcy Means Test

West Virginia Bankruptcy Means Test

Wisconsin Bankruptcy Means Test

Wyoming Bankruptcy Means Test

wrap it all up

Bankruptcy can be a useful debt relief option when an individual is in real trouble. The means test for bankruptcy is complex and difficult to understand. I hope this article has explained the resource review in simple, understandable language to help you make the most informed decision.

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