The Chapter 7 Bankruptcy Means Test
Author: David Romito
When you file a Chapter 7 bankruptcy petition, the means test is applied to make sure that you really need to file bankruptcy and that you aren’t “abusing” the system. That might sound confusing, but it’s in most cases a simple test, and the majority of debtors do ultimately qualify for Chapter 7 bankruptcy.
The Chapter 7 means test can be thought of as consisting of two stages:
The first stage of the test compares a calculation of your annualized income, based on your average monthly gross income over the 6 months before your petition is filed, to the median income for your area and household size. If your monthly income falls at or below the median, the means test is over – there is no ‘presumption of abuse’ and you can file for bankruptcy under Chapter 7.
That median is determined by your geographic location and the size of your family. In the state of Pennsylvania, for example, the median income figures for cases filed on or after 10/1/2008 are as follows:
· Household size 1: ,036
· Household size 2: ,051
· Household size 3: ,775
· Household size 4: ,867
If your income exceeds these medians, it doesn’t necessarily mean that you can’t file under Chapter 7. Instead, it triggers the second stage of the test. In this second step, allowable expenses (which are based on regularly inflation-adjusted IRS standards, such as the standard 9 deduction allowed for the debtor’s car payment expense) are deducted from your monthly income. The amount that’s left over after those allowable expenses is your ‘disposable income’. That number is multiplied by 60 to determine how much disposable income you’ll have over the next five years.
If that total is less than ,575, the means test is again over – there is no ‘presumption of abuse’ and you can file bankruptcy under Chapter 7. If the total is more than ,950, there is a presumption of abuse. In such a case, there is very likely to be filed against you an objection by the case trustee alleging abuse under Section 707(b). Your Chapter 7 discharge is in serious jeopardy at this point; this scenario therefore needs to be anticipated and avoided in advance.
If the total disposable income for the five year period falls between ,575 and ,950, then an extra calculation is necessary: Your expected disposable income over the next five year – that number between ,575 and ,950 – is compared to the total of your non-priority unsecured debts. If your 5-year disposable income is less than 25% of the total of those debts, the presumption does not arise.
Be aware, however, that even if you've "passed" the means test, the trustee can still raise the issue of ‘abuse’ if circumstances of a particular case warrant it. For example, the trustee might argue “abuse” if your income less your ‘actual’ (as opposed to the above described IRS standard) expenses still leaves enough disposable income to ‘fund’ a Chapter 13 plan. Your bankruptcy attorney will be able to tell you what sort of other circumstances might also trigger a challenge from the trustee. Again, if you are to achieve a discharge under Chapter 7, these scenarios need to be anticipated and avoided in advance.
Article Source: http://www.articlesbase.com/bankruptcy-articles/the-chapter-7-bankruptcy-means-test-730509.html
About the Author
David Romito is a Bankruptcy Attorney handling matters in Pittsburgh and the Western District of Pennsylvania. For more answers to your bankruptcy questions, please visit his website at Pittsburgh Bankruptcy Attorney .
What can I do about a rude bankruptcy attorney who has made a couple of mistakes?
My husband and I have filed for ch. 13 bankruptcy in Texas. The attorney that he selected tends to range from nice to rude, especially when we don’t understand an issue. He tends to be a bit pompous when he responds to us. He missed one major creditor that had to be added in as an amendment (property taxes) and failed to calculate the correct amount of monies paid to creditors in the past 90 days. He saw the property tax statement and gave it back to me, and we didn’t add it in the worksheet. I gave him a list of creditors and amounts that we had paid in that time frame, but he only filed our statement of income showing one payment per creditor. Our meeting of creditors is in 20 days. I have considered firing him and getting another attorney. Can I get a refund on his fees from him? Is it possible to have another attorney review our bankruptcy paperwork (second opinion) before being finalized to make sure everything is correct before we find another mistake or the court finds one? Tks.
Need a knowledgeable debt consolidation attorney in the Plano, Texas area?
I have about five to six unsecured debts [no credit cards] that i need to consolidate and make one payment or like. Bankruptcy is not an option for me. The total is around $10K. I am not interested in debt consolidation agencies, so far the ones i have talked to, i know more what to do than them…I can make monthly payments toward the debt and also pay reasonable fees and/or % of satisfactory arrangements. Anyone knows a serious, good attorney in the areas that i can contact for a free consultation. Thank you
Mr Gerald, with replies like yours no wonder you have so many answers….I am retired, disabled, soc sec, and yes i still work, as allowed…so your easy out is poor at best….thanks
What is a good site for downloading divorce papers?
What’s the best for this situation, and getting it over and done with as soon as possible. I don’t even want to sue him, or to try to get money from him. I just want the basics done.
My husband left us in a bad financial state, we have finished paying for bankruptcy, our house was in foreclosure, and neither of us had a job. We have two children. Finding employment, I saved the house with a workout plan, but still owe payments. The mortgage company will not finish the plan unless the house is given to me in a divorce or I get his signature on our final papers. He is missing. Has been missing for 4 weeks exactly. He moved out in January.
There was a lot of mental and emotional abuse and he tells everyone I never let him see the kids but whenever I brought them to see him he was too engrossed in the computer or would go into another room and leave them with the xbox in the main room of the apartment he was in. Now he doesn’t even call or try to contact our young children.
I have filed with the Texas Attorney General for child support. What is my next step? 60 days from the day I file my divorce papers I get a court date. My filing fee in this county is 208 dollars + 8 more for a citation to notify him by sheriff at his last known address that I want a divorce. Now I just need to know what papers to fill out. I cannot afford hiring someone, I live check to check. I have seen that there are some sites that will let you fill out the info and for a small fee mail you the completed, professional papers with a guarantee. Which ones are good?
You could get a second opinion. You could fire your attorney. You could ask the court to review your lawyer’s fees under section 329 of the Bankruptcy Code. You’d probably have to pay another lawyer something to take the time to review your first attorney’s file. You could discuss this with the local bar association or the state bar. You may have specialists in Bankruptcy in Texas. Have you considered looking for a certified specialist in the field?
You may simply have difficulties in communication with your attorney. Why not express your concerns to him in the first place and see if you can work things out. If not, consider some of the alternatives mentioned above.
Debt consolidation is an option, and you should look into it. Just be careful about WHAT you’re getting into. Some plans, because of their higher APR rates get you into more trouble than you were.
Also, some lenders look poorly upon it later on. Some institutions believe that it really is a black mark. It will depend upon the types of deals that your particular company or lender work out, and of course, your own individual circumstance. For some with absolutely NO way out, debt consolidation is a welcome option.
Take a good hard look at all the options and plans offered, and don’t let a single company pressure you into something you just can’t do. Make sure that you’re comfortable with the plan offered before you commit to it.
In any case, it doesn’t hurt to investigate debt consolidation as an option. It doesn’t cost you anything to find out more information about it.
If you want a place to start your investigating, there’s information and listings for debt consolidation providers on the page listed below. You’ll probably find something of use there:
http://axalda.info/debt-consolidation.html
I used Document Do It Yourself, they’re a document prep site. I filled out a questionnaire and they completed my divorce papers for me. They have a money back guarantee, if for some reason your divorce is not accepted by the courts because of the documents they prepared, they return your money.
There are a lot of sites out there, some I’ve heard pretty bad things about…..do your research and only use sites that offer good ratings/testimonials and guarantees.