Bankruptcy Means Test

Bankruptcy Means Test

In order to file for Chapter 7 bankruptcy, you must meet certain income requirements. This is called the bankruptcy means test. If you are considering declaring bankruptcy, you most likely have questions about the bankruptcy means test and how it applies to you. Our Atlanta bankruptcy attorneys at King & King are experienced in bankruptcy, and it is our primary goal to take the stress from filing off your shoulders. We can help you determine which bankruptcy is right for you and if you qualify for Chapter 7 bankruptcy, as well as answer any other questions you may have along the way.

What is the Bankruptcy Means Test?

The bankruptcy means test is used to determine eligibility for a Chapter 7 bankruptcy filing in Georgia. Generally speaking, a person is eligible for Chapter 7 bankruptcy (in which all unsecured debts are discharged and no longer require repayment) only if his or her income is low enough. The bankruptcy means test uses your income and expense information to determine how much money you have that you could potentially use to repay your creditors under Chapter 13 reorganization bankruptcy. If you don’t pass the means test, meaning your income is higher than the income limit and you do not have enough available expenses to deduct, you are not eligible for Chapter 7 bankruptcy.  In that case, a Chapter 13 repayment plan may be your best option.

Bankruptcy Means Test Requirements

The means test uses a mathematical formula to determine whether you qualify for Chapter 7 bankruptcy. The bankruptcy means test is a two-part test and in order to qualify for Chapter 7 bankruptcy, you must pass one of the parts.

Bankruptcy Means Test Part One – Median Income

Part one of the bankruptcy means test compares your average household income for the previous six months to the median income for the state of Georgia based on a household of your size. If your income falls below the median income, the law presumes that you pass the means test and you are automatically eligible to file a Chapter 7 bankruptcy. If your income exceeds the median, that doesn’t necessarily mean you are barred from filing for bankruptcy under Chapter 7. In this case, you will be required to pass the second part of the bankruptcy means test.

Bankruptcy Means Test Part Two – Disposable Income

Part two of the bankruptcy means test takes into consideration your household income and expenses, in order to determine whether you are able to pay back all or a portion of your unsecured debt under Chapter 13 bankruptcy, which establishes a plan for your debts to be repaid over the course of three to five years. In addition to standard deduction allowances based on the number of people in your household and the cost of living, you may also be able to deduct your mortgage, car payments, child support, health insurance, cell phone bill, child care expenses, charitable deductions, and other actual expenses.

If you are considering filing for Chapter 7 bankruptcy, it is important that you understand the median income requirements for the state of Georgia and how to calculate your average household income for the purposes of the bankruptcy means test. Your annual household income can be calculated by averaging your monthly income during the six months prior to your bankruptcy filing and then multiplying that number by 12 to get your average annual income.

If your annual income is more than the median income in Georgia based on the size of your household, you will be required to complete the second portion of the bankruptcy means test, which involves calculating your disposable income and expenses. If your annual income is more than the income limit for your household size and your income has decreased over the previous six months, it might be in your best interest to wait a month or two until your income is below the median level to file for bankruptcy, so you don’t have to complete the means test.

Passing the Bankruptcy Means Test

Simply put, in order to pass the bankruptcy means test and qualify for Chapter 7 bankruptcy, you will need to show that you don’t have the income necessary to pay back your creditors. However, correctly calculating your disposable income can get complicated, which is why it is important to consult a bankruptcy attorney to help you figure out if you are getting all of the deductions you are entitled to.

The Means Test can be complicated. There are actually a number of other issues that can affect the outcome. For example, what exactly qualifies as income? And what expenses can be claimed? What if you have special circumstances? These and other complexities of bankruptcy are the reason that working with a trustworthy bankruptcy attorney is so important. Call the bankruptcy attorneys at King & King in Atlanta for your free consultation. We can discuss the best options for your unique situation and answer questions you may have about the Means Test. Your fresh start can begin today 404-524-6400.

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