The means test is not actually a test but an analysis of a potential bankruptcy debtor’s income to determine qualification for filing a Chapter 7 bankruptcy case. If a prospective debtor’s income is above the median threshold, his or her standard expenses must be considered to complete the analysis. Unfortunately, this may be a complicated process, which was precisely the intention of Congress when enacting BAPCPA, which implemented the means test to make it more difficult for Americans and Utah residents to file Chapter 7 bankruptcy cases.
Theron Morrison and his team of exceptional bankruptcy and collection defense attorneys at the Morrison Law Group are dedicated to assisting any Utah resident with completing the means test and establishing eligibility for filing a Chapter 7 bankruptcy case. We have helped over 8,000 people file bankruptcy and gain a fresh start.
Completing the means test involves no more than two stages, and may only involve one if the debtor’s income is below the Utah median for the debtor’s household size. If not, the “test” proceeds to the second stage where the debtor’s standard monthly expenses are considered.
First, the debtor’s income is compared to the income figures for the debtor’s state of residence, in our case, Utah. Thus, the income of the debtor’s household is compared to the median income for similarly-sized households in Utah. If the debtor’s income is lower than this median income threshold, the debtor may file a Chapter 7 case. If the debtor’s income is not at or below this threshold, the “test” moves to the second stage where standard expenses are deducted from this income amount.
The second stage of the means test requires extensive analysis to calculate whether the debtor retains any disposable income after standard expenses are deducted.
To complete the second stage of the means test, a debtor must enter the amount of his or her income and expenses using the means test forms. Some of the necessary information to complete the means test, such as a debtor’s current monthly income, comes from the debtor’s own personal financial records, while other necessary information is derived from the Census Bureau and the Internal Revenue Service.
Prospective bankruptcy debtors are permitted by the Bankruptcy Code to deduct certain standard expenses such as:
- medical care
All of these expenses (housing, food, clothing, medical care, transportation) are based on IRS averages for the debtor’s location. Some additional actual expenses may also be deducted such as:
- monthly payments for mortgage and auto loans
- charitable donations
There are three possible outcomes of the means test:
- Disposable income less than a certain amount – If disposable income is less than the threshold amount over 60 months, the debtor is eligible to file a Chapter 7 bankruptcy case.
- Disposable income more than a certain amount – If disposable income is over the threshold amount over 60 months, the debtor must file a Chapter 13 bankruptcy case.
- Disposable income between set amounts – If disposable income is between designated amounts, and the debtor would have the ability to repay at least 25% of general, non-priority unsecured debts over 60 months, the debtor must file a Chapter 13 bankruptcy case and is ineligible to file a Chapter 7 bankruptcy case.
Thus, if disposable income under the means test is between set amounts as indicated above in outcome #3, the debtor must make further calculations to determine if he or she may file a Chapter 7 case. Prospective debtors in this situation should not despair and think that eligibility to file a Chapter 7 bankruptcy case is no longer available.
It is true that not every consumer is eligible to file a Chapter 7 case, but the attorneys at the Morrison Law Group are experienced in helping any Utah resident who is eligible but may have excessive income, make the legitimate, allowable deductions of standard expenses to demonstrate eligibility and qualify unquestionably for filing a Chapter 7 bankruptcy case.
The attorneys at the Morrison Law Group can help anyone considering bankruptcy correctly consider all allowable expenses when completing the means test. Call 801.456.9933 today to schedule a FREE consultation. 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.