State Median Income Comparison With Household Expenses
Step two of the means test compares your current income with the state-wide median household income for families of similar size in your state. If your income falls under this median threshold, you have passed and can file Chapter 7 bankruptcy, which will benefit your family.
How To Calculate?
Begin your calculation by adding all your gross income for the past six months and dividing it by six to obtain your gross monthly income figure. This figure includes wages, rental income, child support payments, alimony payments, and retirement funds, but it does not include Social Security payments or welfare payments.
Subtract allowed deductible expenses from total income to determine how much disposable income you have. If it falls under your state median amount, check box 40 on bankruptcy forms and proceed with calculations regarding nonpriority unsecured debt. Otherwise, more complex calculations based on local law must be conducted to see if Chapter 7 applies to your situation.
Calculating Current Monthly Income Deductions
Filling out a means test form requires several calculations based on its instructions. For instance, it asks you to list your income over six months before filing a bankruptcy case and calculate eligible deductions that include expenses such as housing or health care costs that fall under national standards.
Once you’ve listed your eligible deductions, the bankruptcy court will subtract this total from your average monthly income to develop your disposable income figure. The higher it is, the more likely you’ll fail the means test and be disqualified from filing Chapter 7 bankruptcy.
Instead, Chapter 13 bankruptcy allows debtors to keep their assets while spreading debt repayment over three to five years. One advantage of Chapter 13 over Chapter 7 is that unsecured debts like credit card balances and medical bills will be discharged after your bankruptcy plan—this is also one way of eliminating unsecured debt that won’t require passing a means test like Chapter 7.
Passing the Means Test
If your income falls below the median for your state and household size, you have successfully passed the Chapter 7 means test. However, it can be more complex for those earning above this median threshold; deductions and allowances may help those earning above the median pass the test, such as tax withholdings, insurance costs, auto expenses, charitable donations, etc.
Alternatively, if your debt consists primarily of non-consumer debt, such as business or military loans, you may also be exempt from the means test. We can ensure all deductions are properly made to avoid passing this tricky calculation incorrectly and to help ensure all deductions pass the means test correctly.
If this test doesn’t pass correctly, Chapter 13 bankruptcy might be an option; otherwise, you might require debt-relief options like Chapter 13. With our assistance, you could quickly return on track!
