Trick or Treat: Bankruptcy Means Test Changes Again

by Jill Michaux

October 31, 2012

Whether you get a trick or a treat tomorrow when the bankruptcy means test numbers change again depends on where you live.

To decide whether you can wipe out your debts in bankruptcy, several formulas are used.  First you determine if your debts are primarily consumer or business debts. The test does not apply if more than 50% of your debts are business.

If your debts are more than 50% personal, family or household debts, then you determine if your gross income is above or below median income for your household size in your state. These figures are based on U.S. census data adjusted twice a year. The latest adjustment is effective November 1, 2012.

Those numbers go up and down.  In Kansas, for example. the means test got tougher because the median income figures went down.  Yet, last May, the numbers went up.  The numbers that apply to your case are the ones in effect on the date your bankruptcy case is filed.

If your gross income for your household is LESS than the median income for your state, then you “pass” the means test.

Adding up your income is not quite a simple as it sounds, though.  All types of money coming into the household is counted, whether or not taxable, except Social Security benefits. The previous six months of income is counted then doubled. This can result in a true predictor of your future income or not.

What does passing the means test mean?  Filing a chapter 7 bankruptcy is not considered an abuse if you pass the means test.  It also means you can adjust your debts in chapter 13 bankruptcy and pay back few of your general debts such as credit cards and medical bills.

Most debtors will pass the means test and stop there. Your bankruptcy attorney will analyze your circumstances and help you complete the test.  She will know the rules and exceptions to the rules that apply to you. There are numerous local and national court decisions interpreting various aspects of the test.

If your income is above median for your household size for your state then you must complete a 10 page form and apply deductions for allowed expenses. You may pass the means test at the end of the day.

If you have disposable income after deducting all the allowed expenses, you will be required to pay back some or all of your general debts in chapter 13 bankruptcy. For most above-median consumer debts, this amount is far less than what is owed. Repayment is usually without interest and penalties.

But in some cases, the bankruptcy means test can be mean.

Dated: 10-31-2012

Attribution Some rights reserved by CS_McMahon
 

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Jill Michaux has helped Kansas consumers with debt problems for three decades. She and her partner, Mark Neis, are Topeka's only bankruptcy specialists, board certified in consumer bankruptcy law by the American Board of Certification. She help start the National Association of Consumer Bankruptcy Attorneys.

Last modified: June 4, 2013