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  • Can I Prepare for the Means Test in Advance?

    In 2005, Congress added the means test to the bankruptcy code and required individuals with predominantly consumer debts to pass a two-step calculation test for debt settlement. The first step compares their monthly income against the median state and household size median income levels in each state and household size grouping. You can prepare for the means test for Chapter 7 in advance only if you know how to calculate your income and expense information.

    Debtor’s Current Monthly Income

    Initial steps taken by the business bankruptcy court involve establishing whether or not your family’s income exceeds your state’s median for your family size. This assessment is straightforward and is calculated based on an average of your monthly gross monthly income over six months before filing bankruptcy.

    Next, the court subtracts allowable expenses from your current income to determine your monthly “disposable income.” This figure provides crucial evidence, indicating whether enough disposable income is available to pay 25% of unsecured business debt over 60 months.

    Chapter 7 Bankruptcy Means Test

    Is Your Monthly Income Enough for Chapter 7 Bankruptcy?

    Step one of the bankruptcy means test is calculating your current average monthly income, which can be done by adding all the income earned during the six months preceding your bankruptcy filing and dividing by six. Seasonal variations must also be considered, and any lump-sum bonuses or payments need to be factored into this figure before finalizing it.

    Once the total is established, subtract your standard allowed expenses from your average income. These expenses are determined using IRS standards rather than real-world spending and may not accurately reflect housing, food, transportation, utilities, and healthcare costs.

    However, they should consider some actual expenses like childcare fees, healthcare premiums, court-ordered alimony, or support payments, which can often exceed allowable expense thresholds. If these figures pass the means test and you qualify to file under Chapter 7, filing will go forward.

    What are the Debtor’s Actual Expenses?

    The means test compares an individual’s income with expenses to determine whether they have enough disposable income for a discharge under Chapter 7. To accomplish this calculation, actual and predetermined expense amounts such as:

    • Rent
    • Utilities
    • Food
    • Clothing
    • Health insurance
    • Childcare costs (including predetermined payments from childcare services)
    • Term life & disability insurance
    • Spousal support payments ordered by courts

    A means test compares an individual’s current monthly income against the median income for their state and household size. If it falls below this figure, the individual has passed and can file for Chapter 7 bankruptcy relief.

    Chapter 7 Means Test Calculation

    Calculating Your Monthly Expenses

    Step two of the means test involves identifying and documenting allowable expenses, an intricate process of Chapter 7 that relies on specific dollar amounts from government sources for various items. It should be noted that this step can change frequently, making it an incredibly complex part of filing for Chapter 7 bankruptcy. An attorney should be sought should any issues arise here.

    The trustee conducts a six-month audit of your spending habits to determine business expenses. The trustee then calculates your monthly disposable income by subtracting allowable costs from gross income. This figure is then compared with the state’s median income for your household size; if the result is below zero or close to it, you have passed the Means Test and can proceed with filing Chapter 7.

    How Much Tax Does the Debtor Pay?

    Filers wishing to file Chapter 7 bankruptcy for business must pass a means test to assess whether their disposable income can cover some of their debts. The means test is intended to restrict the use of Chapter 7 bankruptcy only when its benefits indeed cannot be afforded—for example, by measuring whether monthly income exceeds or equals median state household income levels in their area.

    Debtors seeking Chapter 7 bankruptcy should work closely with an experienced and detail-oriented attorney when deducting expenses for Chapter 7. Failure to accurately calculate the current average monthly income could result in failing the means test and disqualifying them from using Chapter 7.

    Calculate Your Tax

    Your taxes can enormously impact whether or not you pass the Chapter 7 Means Test. The first step should be comparing your income with that of median-income households in your state for households of your size; if it falls below, a consumer bankruptcy filing is possible without further calculations; otherwise, a more complex calculation must occur.

    The second part of the calculation focuses on your expenses and disposable income. Under federal law, standard deductions have been established for rent, utilities, food, and clothing. However, these may not necessarily represent your actual costs, such as monthly car loan/lease payments, which cannot be included in a means test calculation form.

    Therefore, it is crucial that when filling out a Chapter 7 Means Test Calculation form, all financial documents are available, along with reviewing expense figures posted by the U.S. Trustee Program website thoroughly.

    What is the Bankruptcy Means Test?

    Other Debts

    The means test aims to limit Chapter 7 bankruptcy filings only to those who can no longer pay their debts, starting by comparing your average six-month income over six months before filing with the median income for your state and household size.

    If your current monthly income falls under the median threshold defined by the Census Bureau, then this step of the means test has been successfully completed, and you may proceed to phase two.

    Step two involves subtracting expenses from gross income to determine disposable income. This includes living costs such as food, clothing, and utilities, as well as deductions like insurance premiums, tithing donations, medical costs, and transportation expenses.

    Once this figure has been calculated, it will provide insight into whether there will be enough remaining to repay creditors via the Chapter 13 plan.


    Preparing for the means test in advance is crucial for individuals considering Chapter 7 bankruptcy. Working closely with an experienced attorney is essential to navigate the complexities of this process, especially when considering factors like administrative expense multipliers that can impact your disposable income calculations.

    Buried in Debt? Contact The Pope Firm Now!

    Are you overwhelmed by debt and considering bankruptcy? The Pope Firm is here to help you regain control of your financial future. We offer comprehensive bankruptcy solutions tailored to your needs, including Chapter 7, Chapter 11, and Chapter 13 bankruptcy services. Whether you’re looking to declare bankruptcy in Tennessee or determine if you qualify, our team will guide you every step of the way.

    Don’t let financial stress control your life. Contact The Pope Firm today for a free consultation and take the first step towards a brighter, debt-free future. Let us help you navigate the complexities of bankruptcy with confidence and ease.

    Do I Qualify For Chapter 7 Bankruptcy?

    If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.

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    Frequently Asked Questions

    Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.

    There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.

    Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.

    Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.

    Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.

    There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.

    What are the Differences Between Chapter 7 and Chapter 13?

    The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.

    Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.

    What Other Types of Bankruptcy Are There?

    Two other types of bankruptcy are Chapter 11 and Chapter 12.

    Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.

    Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.

    A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.

    Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.

    Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.

    How bankruptcy affects business depends upon the type of bankruptcy filed.

    Chapter 11

    Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.

    During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.

    Chapter 7

    Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.

    Chapter 13

    Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.

    When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.

    • Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
    • Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
    • Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
    • Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
    • Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.

    Declaring bankruptcy wipes out many debts, but not all.

    What Debts are Usually Covered by Bankruptcy?

    Bankruptcy can clear most unsecured debts, including:

    • Credit card bills
    • Medical bills
    • Overdue utility payments

    Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.

    What Debts Are Not Covered by Bankruptcy?

    • Child support
    • Alimony obligations
    • Those related to personal injury or death in a drunk driving case
    • Any debts not listed on your bankruptcy papers

    No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.

    What Debts May Be Covered?

    Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.

    Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.