Bankruptcy Means Test
The new bankruptcy laws passed in 2005 created some new forms that must now be included in a bankruptcy petition, one of which is the bankruptcy means test for those filing chapter 7 bankruptcy. The means test is supposed to tell the court whether or not you have enough disposable income left after paying your necessary living expenses to pay at least some amount to your creditors in order to settle your debts, instead of having them discharged in bankruptcy. Congress also created several other demands including credit counseling and personal financial management courses.
Your income and expenses are listed on the means test and them compared to averages for your area and family size. If most of your debt is not primarily consumer debt, or you are a disabled veteran “the presumption does not arise”, and you do not have to complete the majority of the form. The means test presumption of abuse signifies that you may have adequate income to pay your debts. If the presumption does arise at the end of the means test you may be pushed to file a Chapter 13 bankruptcy.
The second section will determine your income. Depending on how you file, you and your spouse will submit your income from business, rent, interest, child support, pension and other income for the last 6 months. Your income is then compared to the average incomes of families in your area. If you have a higher income than the other families, you must keep filling out the means test, if less, the presumption of abuse does not arise and you are done.
Next you’ll subtract living expenses for your family size and location, these include food, housing, automobile, utilities and other expenses.
The final part is determing how much money you have left over each month. If you have less than $6575 a year, the presumption does not arise, the presumption does arise if you have more than $10,950, and if you have somewhere inbetween $6576 and $10,949 you must continue with the means test form which compares the amount of unsecured, non-priority debt you have with your disposable income.
The bankruptcy means test is confusing, so conferring with a bankruptcy attorney is always a good option before you file bankruptcy.
