Before you want to file for bankruptcy, you may be required to take the means test. The means test can help you conclude the type of bankruptcy that you are eligible for – so in case that you pass this test, you can file for a Chapter 7 bankruptcy and if you do not clear this, you are still eligible to file Chapter 13 bankruptcy. The means test has to be calculated precisely so as to know which chapter to file the bankruptcy case against.
Typically, there are two types of personal bankruptcies.
- Chapter 7– In this chapter of bankruptcy, most of the debtor’s assets are liquidated by a bankruptcy trustee so as to pay your debts. The remaining of the debts are mostly discharged. This type of bankruptcy is typically completed in several months
- Chapter 13– This type of bankruptcy filing lets you repay your creditor over several months and lets you keep most of the assets with you.
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Before seeking help from our affirmed lawyers, you could have a valid question in mind. Should everyone take up the complete means test analysis? It is not mandatory to take up the means test analysis for Chapter 7 if you satisfy any of the below-mentioned conditions
- You are a veteran, currently disabled and the debts that you currently owe have been accrued while you have been actively serving on defence duty
- Your debts are entirely business debts
- Your average household income is well below the median income of your state – California, Nevada or Texas
Of the above three reasons for exemption from the means test, most of them find themselves complying with the low household income according to the standards set down in their living state.
Understanding the Median Income based exemption
Calculating the average household income is very simple. It is arrived by summing up all of the income that includes wages, rental income, unemployment benefits, business income and all retirement/ pension benefits. This summing is done for the past 6 months and the final value is divided by six to get the average income. For comparing this average income to the state’s median income, multiply the average income by 12. Depending on the state that you live income, compare the arrived value with the below figures
MEDIAN FAMILY INCOME BY FAMILY SIZE
Family Size California Nevada Texas
1-person families $49,983 $43,685 $42,908
2-person families $64,779 $56,367 $58,666
3-person families $68,917 $59,346 $61,502
4-person families $79,418 $69,672 $71,973
For every additional person, you may add $8100 to the median income threshold. The figures shown here are liable to change and hence a bankruptcy attorney, Los Angeles or Dallas areas can provide the updated numbers. So if your household monthly income is lesser than the digits shared above for your household size, then you are exempted from the means test calculation – you can directly file for Chapter 7 bankruptcy.
Means Test Application Procedure
Let’s consider the case when the household income is greater compared to the state median income – then you need to complete the full means test calculation. The procedure involves deducting the allowed expenses from the average household income. These allowed expenses are not directly what you personally spend but needs to be adhering to the standards set by the Census Bureau and the IRS (the national and local standards).
The remaining amount after the expenses are deducted becomes your disposable income and if your total disposable income value for the upcoming 60 months is less than $7700, then you meet the expectations of the means test for Chapter 7. If the disposable income value of the next 60 months is greater than the allowed expenses, then there are series of other calculations to determine your eligibility for bankruptcy.
The right support
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