Aurora Bankruptcy Attorney And The Means Test

One of the largest changes in the 2005 revisions to the bankruptcy code is the infamous “means test.”  The means test determines Chapter 7 eligibility and Chapter 13 repayment through a mechanical, mathematical approach based on the debtor’s average income over the last six full calendar months. 

Debtors who are under a certain income standard can qualify almost automatically, while debtors over the standards have to do some work.  The means test income standards are not an absolute bar to filing Chapter 7.

For example, let’s take a four person household with a $100,000 per year annual income.  The income standard for their household is currently $81,097 per year (as of 3-15-11), leaving them about $19,000 over the standard.  They can still qualify for a fresh start bankruptcy under Chapter 7.  A variety of additional expenses can qualify high-income debtors for Chapter 7.  For example:

• Child support, spousal support, and domestic support obligations;
• High mortgage or property tax payments on one’s home;
• High medical, health care, medical insurance, disability insurance, and  healthcare flex spending account expenses;
• Car payments;
• Day care or baby-sitting expenses;
• Tax liability;
• Union dues, mandatory pension contributions, uniform expenses, or other  mandatory work-related expenses;
• Educational expenses for a child with a disability;

Looking back at our four-person household, let’s say that wife pays union dues and contributions to her mandatory pension, and they pay $1,000 per month for day care while they both work, have a mortgage (with escrow) of $2,000 per month, and they have two car payments.  Those folks can probably file a Chapter 7 case without major issue, even with an income $19,000 over the standard.

Ultimately, any means test calculation requires time and each situation is very fact-specific; however, just because someone is over the income standard for the household size does not mean that they do not qualify to file Chapter 7 bankruptcy.

Learn more at Aurora Bankruptcy Attorney or call (847) 520-8100.