Bankruptcy Means Test

BANKRUPTCY MEANS TEST

CHAPTER 7 BANKRUPTCY LAWYERS

What is a means test?

The Chapter 7 bankruptcy means test is a formula designed to determine who is eligible for filing Chapter 7 bankruptcy in all fifty states. It is the way the local bankruptcy courts keep individuals with high incomes from filing for Chapter 7 bankruptcy protection. Although it could, it could allow individuals with an income that has high expenses (such as a high mortgage payment) to qualify for Chapter 7 bankruptcy, which will discharge payments of specific debts that the individual has incurred. The means test deducts monthly expenses from your current monthly income and calculates your monthly disposable income. Each state has a different dollar amount as a threshold for qualifying under the means test. In the State of Alabama: • If you are single, live alone, and earn less than $39,768 per year, you automatically qualify under the means test to file for Chapter 7 bankruptcy protection. • If you have one other dependent living with you, with no income of their own, and you make less than $48,770 per year, you automatically qualify to file for Chapter 7 bankruptcy protection. If you qualify based on the means test for Chapter 7 bankruptcy protection, you could have the majority of your debts wiped out. Your creditors would not be able to collect from you.

Alabama Means Test Calculator

In order to determine whether your income is below Alabama’s median income level, you will need to calculate your family’s gross income within the last six months. If you fall below the average, there is a presumption that you pass the bankruptcy means test in Alabama and are eligible to file a Chapter 7 bankruptcy. If your income is higher than the limit, then you will need to complete the next portion of the means test. To help you with your calculations, you can use an Alabama Means Test Calculator. It is important to note that figures for the means test are updated frequently, and as a result, some means test calculators may be incorrect. Make sure your Alabama Means Test Calculator is up-to-date. now

How Can Individuals With High Expenses Still Qualify for Chapter 7?

Addressing how individuals with high expenses can still qualify for Chapter 7 bankruptcy in Alabama, the means test deducts monthly expenses from your current monthly income and calculates your monthly disposable income. This process could potentially enable individuals with some income and significant expenses, such as a high mortgage payment, to meet the requirements for Chapter 7 bankruptcy. By discharging payments of specific debts incurred by the individual, Chapter 7 bankruptcy offers a route for those facing financial challenges to find relief and a fresh start.

What Happens If I Fail the Means Test for Alabama?

If you fail the Chapter 7 bankruptcy means test in Alabama, you probably need to talk to an attorney. We can review your expenses on the second part of the means test to make sure you did not forget anything. Many people miss common deductions on the means test, like taxes, involuntary deductions, disability, term life insurance, mortgage payments, car payments, other secured debt payments, court-ordered payments, child care, health care, and charitable contributions. Further, if you still fail after reviewing your deductions, but you expect your income to decrease in the next few months, then you may be able to wait a few months to see if you can pass the means test and then file a Chapter 7. If you have questions regarding a Chapter 7 bankruptcy and the means test, you should contact an experienced Huntsville or Decatur, Alabama, bankruptcy attorney. We offer free consultations to all bankruptcy clients. Call 256-534-3435 or 256-350-7200. We are here to help.

Bankruptcy Means Test Frequently Asked Questions

The following answers provide general information about the Chapter 7 bankruptcy means test. Median-income limits and official forms change periodically, and every case is fact-specific. Speak with a bankruptcy attorney about the figures and rules applicable to your proposed filing date.

What is the Chapter 7 bankruptcy means test?

The Chapter 7 means test is a calculation used to evaluate whether an individual debtor’s financial circumstances create a presumption of abuse under Chapter 7. It compares current monthly income with applicable median-income data and, when necessary, allows specified expense deductions.

Who must take the bankruptcy means test?

Most individuals with primarily consumer debts who seek Chapter 7 relief must complete the means-test forms. Certain debtors, including some individuals whose debts are primarily business debts and certain qualifying military debtors, may be exempt.

How is current monthly income calculated for the means test?

Current monthly income generally uses the average monthly income received from most sources during the six full calendar months before the bankruptcy filing. Because timing can materially affect the calculation, income records should be reviewed carefully.

Does the means test use my income on the day I file?

Not by itself. The calculation generally looks backward at income received during the applicable six-month period before filing. A recent raise, job loss, bonus, or other income change may therefore affect the result differently than expected.

Is my spouse’s income included in the means test?

A spouse’s income may need to be disclosed and may affect the calculation even when only one spouse files. The treatment depends on living arrangements, household expenses, the source of the debts, and permitted marital adjustments.

What income is included in the bankruptcy means test?

Income from wages, salaries, bonuses, commissions, business operations, rental property, pensions, retirement distributions, unemployment compensation, and other sources may be included. Some income, such as qualifying Social Security benefits, may be excluded under applicable law.

Are Social Security benefits included in the means test?

Qualifying benefits received under the Social Security Act are generally excluded from current monthly income for means-test purposes. Other retirement or disability payments may be treated differently.

What is Alabama median income in the means test?

Alabama median-income figures depend on household size and are updated periodically. The correct figure is the one in effect for the applicable filing date, so older online charts should not be treated as current.

What happens if my income is below the applicable Alabama median?

Income below the applicable median generally means there is no presumption of abuse under the income-comparison portion of the means test. Other Chapter 7 eligibility requirements and case-specific issues still must be considered.

What happens if my income is above the applicable median?

Being above the median does not automatically disqualify a person from Chapter 7. The debtor generally proceeds to the expense-deduction portion of the test to calculate disposable income under the statutory formula.

Which expenses can be deducted on the means test?

Permitted deductions may include standardized living expenses and certain actual expenses, such as taxes, mandatory payroll deductions, secured-debt payments, domestic-support payments, health-care expenses, child-care costs, insurance, and other qualifying obligations.

Can a high mortgage payment help me pass the means test?

Certain secured-debt payments may be included in the means-test calculation. Whether a mortgage expense is allowed, and in what amount, depends on the facts, the applicable forms, and current bankruptcy law.

Can car payments be deducted on the means test?

Certain vehicle ownership and secured-debt expenses may be deductible. The calculation can differ depending on whether the debtor owns, finances, leases, or intends to surrender the vehicle.

Are taxes deducted in the bankruptcy means test?

Certain federal, state, local, Social Security, and Medicare taxes may be deducted when properly calculated. The allowable amount should reflect applicable means-test rules rather than simply using an estimated withholding amount.

Can child support or alimony payments be deducted?

Court-ordered domestic-support payments that the debtor is legally required to pay may generally be included as permitted deductions, subject to the means-test rules and documentation.

Can health-care and health-insurance expenses be deducted?

Qualifying health-insurance, disability-insurance, health-savings-account, and out-of-pocket medical expenses may be considered. Some expenses are standardized while additional necessary expenses may require documentation.

Can charitable contributions be deducted on the means test?

Qualifying charitable contributions may be deductible within applicable legal limits when they are consistent with the debtor’s actual practice and are properly documented.

What does disposable income mean on the means test?

Means-test disposable income is the amount produced after subtracting permitted deductions from current monthly income under the statutory formula. It is not always the same as the amount shown in a household’s ordinary monthly budget.

What does it mean to fail the bankruptcy means test?

A result showing a presumption of abuse may make Chapter 7 more difficult, but it does not always end the analysis. An attorney may review deductions, special circumstances, exemptions from testing, filing timing, or alternatives such as Chapter 13.

Can special circumstances help overcome a failed means test?

Bankruptcy law permits a debtor to document certain special circumstances that justify additional expenses or adjustments to income when there is no reasonable alternative. Detailed records and a written explanation are generally required.

Can I wait to file if my income is going down?

Because the calculation generally uses a six-month lookback period, waiting may change the result when income has recently decreased. Filing timing should be discussed with an attorney because delay can also affect foreclosure, repossession, garnishment, lawsuits, and other deadlines.

Can I still file Chapter 13 if I do not qualify for Chapter 7?

Many individuals who do not qualify for Chapter 7 may consider Chapter 13, which uses a court-supervised repayment plan. Eligibility, plan length, payment amount, debt limits, and property issues require a separate analysis.

Does passing the means test guarantee Chapter 7 eligibility?

No. Passing the means test does not guarantee that a Chapter 7 case is appropriate or will succeed. The court and trustee may consider assets, exemptions, prior filings, accuracy of disclosures, ability to pay, and the totality of the circumstances.

What documents should I bring for a means-test review?

Helpful records include at least six months of pay statements and other income records, recent tax returns, bank statements, mortgage and vehicle statements, insurance costs, tax deductions, support orders, child-care expenses, medical expenses, and information about household members.

Does Ferguson & Ferguson offer free bankruptcy means-test consultations?

Yes. Ferguson & Ferguson offers free bankruptcy consultations. The Huntsville office can be reached at 256-534-3435, and the Decatur office can be reached at 256-350-7200.

Where are Ferguson & Ferguson’s bankruptcy offices located?

The Huntsville office is located at 303 Williams Avenue SW, Suite 321, Huntsville, Alabama 35801. The Decatur office is located at 211 Oak Street NE, Decatur, Alabama 35601.

Huntsville Office Location: 303 Williams Avenue SW Suite 321 Huntsville, AL 35801 Decatur Office Location: 211 Oak Street NE Decatur, AL 35601