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When should you wait a little before filing for bankruptcy?

On Behalf of | Sep 27, 2022 | Bankruptcy

Your wife just lost her job due to downsizing. Since you were already living paycheck to paycheck, it’s not hard to see that bankruptcy is your only real option for managing your debt and getting life back on track – but should you file right away or wait for a little?

The answer may depend on what other income you have and what resources you may want to protect.

Chapter 7 requires you to pass a means test

Chapter 7, which is the most complete form of bankruptcy and the quickest to file, requires applicants to pass what is known as a “means” test. This is based on the median income for a family of your size in your state.

For example (although this figure resets periodically as new data is acquired), the median family income for two people for bankruptcy cases filed prior to March 31, 2022, was $66,748. If your monthly gross income was $5562.33 per month, you and your spouse would automatically presume to qualify for a Chapter 7 bankruptcy.

If not, you may still be able to qualify through a secondary means test, which looks into your expenses and allows you to show where your dollars are going. Should you fail both tests, however, you would be obliged to go through Chapter 13, which is both more time-consuming and expensive.

Since you’re now relying solely on your income, you may think that you’ll easily pass the means test – but there’s a catch: The court looks at the last six months of your income in order to determine your monthly average. If your wife just lost her job, her income for the last six months may put you over the Chapter 7 means test.

In that situation, it may be best to wait a few months before you file for bankruptcy. That will change the income figures the court uses in your favor. That’s not necessarily a problem, but it’s definitely something you should consider only with the proper legal guidance.

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