Sirody & Associates Helps You Understand The Bankruptcy Means Test
When filing for personal bankruptcy there are two options: Chapter 7 and Chapter 13. The bankruptcy means test helps determine if you qualify to file for the less rigorous Chapter 7. Higher income individuals who fail the means test must file for Chapter 13 and repay a portion of their debts according to a court supervised repayment plan.
Chapter 7 And The Means Test
Chapter 7 bankruptcy is designed for persons who cannot repay their debts. In Chapter 7, the debtor’s nonexempt assets are sold by a bankruptcy trustee and the proceeds are used to pay the creditor claims. The means test helps determine if you qualify, and a reliable lawyer can help you through this process.
Exemption From The Means Test
If your income is less than the median income for the State of Maryland, you do not have to take the means test and can file directly for Chapter 7. Median income is figured by your average income over the past six months. Other means test exemptions are allowed for those with primarily non-consumer (business) debts and for disabled veterans with debts incurred during active duty.
If your income is over the state median, then you must complete the means test to see if you qualify to file for Chapter 7.
Means Test Calculation
The means test requires the calculation of all your household income and expenses. Essentially all income must be included in the total, such as:
- Wages, salaries, tips, bonuses, commissions
- Net income from business operations or professional work
- Farm income (minus allowable expenses)
- Interest, dividends, and royalties
- Income from rent and property
- Pension and retirement income
- Child support income
- Unemployment and workers compensation
- Disability insurance and annuity payments
Expenses can include living necessities, housing, and transportation, child support, healthcare, and education costs.
You total expenses are then subtracted from your total income. The difference is compared to national, state, and local averages for your household size. This comparison data is derived from census and IRS standards. These calculations can be complex, so it helps to have a skilled attorney assist you.
Passing Vs. Failing The Means Test
If you pass the means test this means you can file for Chapter 7 bankruptcy. Even if you qualify for the less rigid Chapter 7, it still might be better to file for Chapter 13. For example, if your home is facing foreclosure, you might be able to keep your home if you file for Chapter 13 instead of Chapter 7. Good legal counsel can help you make these decisions.
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