Debtors who wish to file a Chapter 7 bankruptcy case must “take the means test.” The “means test” determines whether income is low enough to qualify to file a Chapter 7 bankruptcy case. The means test is designed to prevent individuals who earn high wages from filing a Chapter 7 bankruptcy case. However, even high-wage earning debtors with significant monthly income may still qualify for filing a Chapter 7 bankruptcy case if they have sufficient, reasonable expenses, such as mortgage and automobile loan payments, taxes, and other miscellaneous monthly costs. Many prospective bankruptcy filers are surprised when they learn that the date they file their bankruptcy petition may determine their eligibility to file a Chapter 7 bankruptcy case.
Utah debtors’ income must be below the median income for Utah in order to qualify to file a Chapter 7 case. Otherwise, a debtor’s expenses must be considered to reduce disposable income so it does not exceed specific threshold amounts. How is income measured? By calculating all income received within the six-month period preceding the date that the bankruptcy petition is filed.
This six-month lookback period ends on the last day of the month prior to the month that a debtor files his or her petition. This may cause certain issues to arise. To illustrate, if a prospective filer plans to file in June 2020, the six-month period for calculating income is December 1, 2019, through May 31, 2020.
Because many people receive Christmas bonuses during December, income can appear to be higher during this period than any normal six-month period that does not include December. Thus, waiting until July will remove the month containing the Christmas bonus from the lookback period and reduce income accordingly.
Also, if a prospective debtor is paid every two weeks, he or she may have 25 or 27 paychecks during a certain pay period because each month does not contain the same number of days. Anyone who is walking the tightrope of Chapter 7 eligibility may be affected by this extra paycheck. Filers may time their case filing when they have received 25 paychecks in the six-month lookback period, so they are eligible for Chapter 7.
An experienced Morrison Law Group attorney can help you make the necessary calculations for completing the means test and determining if you are eligible to file a Chapter 7. Call 801.456.9933 today to schedule a FREE consultation and discuss your complete set of options. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.