Things To Know About The Bankruptcy Means Test
Since the passage of changes to the U.S. Bankruptcy Code in 2005, the means test has been a required method of screening bankruptcy filers to see if they have the ability to pay back a portion of their debts. If the test shows an ability to pay, then the applicant is not eligible to file for Chapter 7 debt liquidation and must instead seek a Chapter 13 debt reorganization.
At the Law Office of Paul L. Urich, P.A., I have an in-depth knowledge of the means test and what it requires. In fact, I work with the test every day. The means test is truly the deciding factor as to whether you will be able to have your debt discharged in a Chapter 7 bankruptcy or will instead need to file a Chapter 13 bankruptcy and repay a portion of the debt. When you come to my firm, I will carefully analyze your finances and determine if you “pass” the means test or not.
Step One: Comparing Your Income To The State Median Income
The first part of the means test is simply a comparison: How does your household income compare to the median income in Florida for a family the same size as yours? On March 15, 2011, the U.S. Department of Justice released its official annual adjusted median income data. In Florida, the median data is:
- $40,029 for a household of one
- $50,130 for a household of two
- $54,594 for a household of three
- $65,135 for a household of four or more
Even if your income is higher than the median, it does not automatically mean you are ineligible for Chapter 7. It will also be important to look at the second part of the test.
Step Two: Calculating Disposable Income And Unsecured Debts
In the second part of the means test, certain expenses are deducted (subtracted) from your gross income to arrive at your disposable income. If your projected disposable income for the next five years is less than $100 a month ($6,000 total), you most likely pass the test and are eligible to file for Chapter 7. If your disposable income projects to be more than $10,000, you likely will not be eligible.
If your projected disposable income is between $6,000 and $10,000, then we will compare your disposable income to the amount of unsecured debt you have. If your disposable income is less than 25 percent of your unsecured debts (such as credit cards and medical bills), you will very likely pass the test and qualify for Chapter 7 bankruptcy.
What Can Be Deducted From Gross Income?
The Internal Revenue Service (IRS) allows you to deduct many expenses, which reduces your disposable income and increases your chances of passing the test. The full list is very detailed but here are some examples of deductions:
- Certain health care costs and dental costs
- Car payments
- Expenses for union dues
- Expenses for work uniforms
- Court-ordered alimony and child support
I can go over the full list with you during your consultation.
Learn More About Your Bankruptcy Options – Contact Me Today
I am a debt relief agent. I help people file for bankruptcy relief under the Bankruptcy Code.