What is the Chapter 7 Bankruptcy Means Test?
Are you considering filing a Chapter 7 Bankruptcy but have heard that in order to qualify, you must pass a means test? You do have to do the means test and a bankruptcy lawyer can do this for you over the phone or in our office. The means test takes your income, necessary expenses, and family size into account to determine whether you have enough disposable income to pay your debts.
The simplest way to pass the means test is if your household income falls below the median household income specific to your state and household size. The household income is calculated by looking at the entire household for the last six (6) full months. In Alabama, currently the median household income for a household of one is $49,798 per year. The median household income is published by the Census Bureau and updated at least every year. If your household income falls below the median household income then you have passed the means test.
If your household income does not fall below the median household income, then additional information is needed to pass the means test. The court will need to know information about any necessary expenses in the last six months. Necessary expenses include housing expenses, groceries, clothing, medical expenses, taxes, and vehicle payments.
Once these are deducted from your household income, we know what your disposable monthly income is. Your disposable monthly income determines whether or not you can file a Chapter 7 bankruptcy. If your disposable monthly income is too high you will have to file a chapter 13 bankruptcy and make payments to the court based on your disposable monthly income.
Additionally, if you can not pass the means test but have experienced a significant decrease in income due to a job loss or inability to work, the court may still allow you to file a Chapter 7 if your job loss was not intentional to be able to file a Chapter 7.
Sometimes your bankruptcy attorney in Prattville or wherever you live may advise that you hold off on filing for a couple of months for a bonus to fall off of your six months income or for your new decreased income to show so that you can pass the means test.