If your income amount exceeds that of the average similar household, you must complete the rest of the entire means test in order to determine whether you qualify or not. This includes taking a look at your other expenses and deducting them from your total income, such as those related to child care, food, utilities and housing costs. Your total income, minus your expenses, is then used to determine how much income you are left with each month. If your amount calculated comes out to be between 125 and 175 dollars, you will likely qualify for Chapter 7 bankruptcy. If you have less than 125 dollars, you will automatically qualify under Chapter 7. If you happen to have a disposable income exceeding 175 dollars, you may be entitled to file a Chapter 13 action.
Source: dougbreyfogle.com
Video: Chapter 7 Qualification Test: Watch Now!
The Means Test and Business Debt
Coach Smith’s case falls in a gray area of bankruptcy law. On the one hand, the law excepts “business debtors” from the means test. On the other hand, he clearly can repay something to his creditors. The bankruptcy law imposes a “good faith” requirement on the Chapter 7 debtor which generally ensures that the debtor gets a fresh start, not a head start. However, is it “bad faith” to take advantage of the bankruptcy law that allows Smith to file Chapter 7 and avoid a Chapter 13 repayment plan? There will certainly be litigation over this high profile bankruptcy case.
Source: hainesandkrieger.com
How To Pass The Chapter 7 Bankruptcy Means Test In Colorado
As you can see, the allowable monthly deductions are fairly wide ranging. But completing the means test requires knowledge of case law and the Bankruptcy Code to know whether or not an expense can be deducted. Also, your household size can affect how much you can deduct. Who can be included in your household is part of our analysis. Once we have a full understanding of your income and expenses and complete the means test, we can tell you whether or not you can file Chapter 7 bankruptcy.
Source: coloradobankruptcyguide.com
Do You Qualify under the Chapter 7 Means Test? : Texas Bankruptcy Blog
How do you determine whether a Chapter 7 or Chapter 13 bankruptcy is right for you? The first question is whether you qualify for Chapter 7. Your qualifications are determined by a process known as the means test, a standard articulated under the Bankruptcy Code. In general, a bankruptcy court will compare your income to the average income in your county. If you income is less than the average, you may declare Chapter 7. If not, Chapter 13 may be your only option.
Source: txbankruptcyblog.com
Differentiating Between Chapter 7 and Chapter 13 Bankruptcy
Here again, the main benefit of Chapter 13 over Chapter 7 is that the petitioner will be able to keep his properties that would or else be sold off to repay the unsecured creditors whom you owe money. A debtor who will file Chapter 7 can only retain the non-exempt properties by paying the trustee with the cash value of the property. You can repay your debt according to the new repayment plan that will be set by the Bankruptcy court. You can even feel satisfied about paying back a portion of your debt through this type. You can classify your creditors according to the priorities but only if this is accepted and allowed by the court. The automatic stay that will be imposed on the debtor will also be extended to the co-debtors who have even guaranteed the loan on behalf of the debtor.
Source: thestudentappeal.com
Getting Stuck in the Bankruptcy Wasteland
Additionally, the deductions allowed on the means test are standardized and in many cases are much less than your actual monthly expenses. The means test could very well indicate that you have more disposable income than you actually do. This would make your chapter 13 plan payment more than you could reasonably afford.
Source: fpbankruptcylaw.com
Chapter 7 Bankruptcy Means Test
Chapter 7 Bankruptcy Means Test: Can I Qualify For Chapter 7 If My Income Is ABOVE Average? If you are a repeat reader, you may have heard me discuss the means test. Specifically, I have a tendency to blabber something along the lines of "if you current income is lower than the IRS average income for a comparable family size, you are allowed to file for chapter 7 bankruptcy protection." I have to admit, that this description is a gross simplification of the means test. However, I do this on purpose. See, most potential chapter 7 debtors that I consult with qualify under this first step of the means test. Thus, in most cases, further explanation is not necessary. However, what happens when your household income is higher than the IRS mean income as adjusted for family size? For those potential debtors wondering this same question, you are in luck. Today I am going to take a few moments to explain the chapter 7 means test in its entirety. The Chapter 7 means test is more than just an arbitraty cut off between chapter 7 and chapter 13 bankruptcy. A formula is applied to determine whether or not the consumer should have enough money available to make some minimal payment to creditors in a Chapter 13 bankruptcy plan. The goal is to reserve Chapter 7 bankruptcy for those who really have no means to pay and to push those who have available income into Chapter 13 bankruptcy plans, so that their creditors will receive at least partial payment. See, it would be a waste of time and resources for a debtor to participate in a chapter 13 plan if they have little or no disposable income to pay unsecured debtors. However, it would be unfair to creditors to allow an individual with considerable disposable income to complete a chapter 7 bankruptcy. Now, back to the means test. As I stated earlier, the means test consists of several steps. The first step in the Chapter 7 bankruptcy means test is simple: it compares your income to the median income in your state for a family the same size as yours. As I have previously mentioned, the IRS mean income as reported for the state of Arizona can be found below: Family Size of 1: $41,915 Family Size of 2: $54,510 Family Size of 3: $58,696 Family Size of 4: $66,030 If your income adjusted for family size falls below the above numbers, that’s it. You can be fairly certain that it is possible to file for chapter 7 bankruptcy in Arizona. If your income is higher than the median income, it doesn’t necessarily mean that you can’t file for Chapter 7 bankruptcy; it just triggers the second step in the test. In this second arm of the means test, a bankruptcy attorney will review your financial situation as it would apply to a chapter 13 bankruptcy. The intent is to determine the degree of repayment a chapter 13 plan would afford your unsecured creditors. Certain allowable expenses (as determined by IRS guidelines) are subtracted from your income to find your "disposable income." If your projected disposable income over the next five years totals less than $6,000 ($100/month), you likely "pass" and can file under Chapter 7. The assumption is that your ability to repay unsecured creditors is severely limited by your lack of disposable income. Thus a chapter 13 plan is irrational. If your disposable income is greater than $10,000 over the next five years, a presumption arises that you don’t really need to file for Chapter 7 bankruptcy and you may only be allowed to do so if you can demonstrate special circumstances. See, in this case, a significant repayment could be made to creditors via your monthly disposable income. In the gray area between $6,000 and $10,000, yet another calculation is often required which compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over that five years is greater than 25 percent of your unsecured, non-priority debts, you’ll probably find yourself in the same circumstances as if you’d had more than $10,000 in disposable income. However, if it is less than 25 percent of your unsecured, non-priority debts, you will likely "pass" the means test. Note that even if you ‘fail’ miserably, if your calculated income and disposable income are too high, there may still be special circumstances that allow you to file for chapter 7 bankruptcy protection. One obvious "special circumstance" might be that the debtor is now unemployed and doesn’t really have the ability to pay that the artificial test suggests. As you can see, the means test is complicated. It requires an understanding of the rules concerning how your income is calculated for means test purposes and which debts are classified as unsecured and non-priority. Note that the Means Test applies only to individuals whose debts are "primarily consumer" debts. Case law holds that taxes are not consumer debts. As always, I recommend consulting with an experienced bankruptcy lawyer to discuss your unique financial situation. Additional Resources Phoenix Bankruptcy Lawyer Arizona Bankruptcy Law Blog Phoenix Immigration Lawyer Arizona Immigration Law Blog
Source: jdsupra.com
What is the Chapter 7 Bankruptcy Means Test, and How is the Test Applied?
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Source: consumerlitigators.com
Chapter 7 Bankruptcy Means Testing and Surrendered Collateral
While the decision in Sterrenberg is not surprising given the overall direction of means testing jurisprudence, the decision does not address a few points. For one, the decision does not address the earlier Haenke decisions in the Eastern District, where the Bankruptcy Court held the opposite, that contractually due debts could be deducted even if surrendered, and was subsequently affirmed on appeal to the district court. Additionally, while the recent chapter 13 decisions favor a forward looking approach, including the 4th Circuit’s Quigley decision concerning surrendered property in chapter 13, chapter 13 includes “projected disposable income” language that is absent from chapter 7.
Source: eastwakebankruptcy.com