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Bankruptcy Means Test Basics

The bankruptcy means test is used to determine eligibility for a Chapter 7 bankruptcy. It is one of the major hurdles to overcome if you want to be eligible for a Chapter 7 filing. Those that cannot pass the means test or otherwise become eligible for Chapter 7 may be able to use a Chapter 13 repayment plan instead.

 

Georgia’s Median Income for the Means Test

 

If you make less than your state median income, you do not need to worry about the means test, and you are generally eligible for a Chapter 7 bankruptcy. Median income numbers are update frequently. These are the Georgia median income levels effective April 1, 2017, but you should ask your bankruptcy attorney if the numbers have been updated.

 

  • $43,274 for a one-person household
  • $56,301 for a two-person household
  • $62,483 for a three-person household
  • $73,202 for a four-person household

 

Each additional member of a household increased the median income amount by $8,400.

 

To determine your current income, you will have to report your income for the past six months. This will be used to calculate your current monthly income, which will then be adjusted into an annual figure and compared to the Georgia median income.

 

If you have had steady income for the past six months, it will be fairly simple to figure out your current monthly income. However, if you have had recent changes in your income or receive commission payments or other irregular compensation, it will be a bit more complicated.

 

What to Do If You Fail the Means Test

 

If your income is over the state median, you have to take the means test, which requires you to subtract statutorily allowed expenses from your income. This calculation attempts to determine how much disposal income you have to pay your creditors in a Chapter 13 repayment plan.

 

Because Chapter 13 plans last up to five years, you will multiply your currently monthly income by 60 to determine your potential income over the next five years. You will then subtract the allowed expenses for this time period. If the result is over $12,850, you fail the means test. If the amount is below $7,700, you pass the means test. Disposal income between those amounts will require further calculations to determine if you pass the means test.

 

Failing the means test raises a presumption of abuse, but that presumption can be overcome if you have special circumstances justifying higher expenses. You may also decide that a Chapter 13 bankruptcy is a better option for you.

 

If you expect a reduction in income that could put you below the state median income, you may be able to become eligible for Chapter 7 by waiting a few months to file. Consult with a bankruptcy attorney to discuss your eligibility and options if you are unable to pass the means test.

 

We’re here to help you through your bankruptcy case from start to finish. Contact us or call (912) 351-9000 to schedule a free consultation. Together we will explore how bankruptcy can help you.

 

For over 35-years we have proudly served the people in Savannah, Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Springfield, Pembroke, Brooklet, Garden City, and Ludowici, Georgia.

We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.

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The Bankruptcy Means Test Explained

The Bankruptcy Means Tests is one of the most complicated aspects to bankruptcy law. This “test” was born of the 2005 changes to federal bankruptcy law implemented by congress in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Effectively, individuals with primarily consumer debts have to prove that they are not abusing the bankruptcy laws.

To be certain, the means test makes qualifying for Chapter 7 bankruptcy more difficult; however, an experienced bankruptcy attorney can help you navigate the means test and qualify for the debt relief that you deserve.

The Bankruptcy Means Test Explained

The means test is a review of your income minus expenses. It determines whether or not you qualify for bankruptcy relief under Chapter 7.

If your net income falls below the state median for your household size, then you automatically qualify for Chapter 7 bankruptcy. Because there is no “presumption of abuse,” below-median debtors do not have to run the means test.

If your net income is above the state median for your household size, then you must run the means test to determine whether or not you qualify for Chapter 7 bankruptcy. An above-median debtor must overcome the presumption of abuse and demonstrate that the qualify for Chapter 7 bankruptcy. Understand that having a high income does not preclude you from relief under Chapter 7.

With the help of the experienced attorneys at The Law Offices of Barbara B. Braziel, even people who earn well above the median income for our state can qualify for Chapter 7 bankruptcy. Contact us for a free consultation and analysis of your income.

Median Income In Georgia

As of November 1, 2016, the median household income in Georgia is:

  • Household of One: $42,735
  • Household of Two: $55,600
  • Household of Three: $61,705
  • Household of Four: $72,290
  • Households of more than four: add $8,400 for each individual in excess of four.

If you live in Georgia and your gross household income falls below these figures, then you qualify for Chapter 7 bankruptcy relief without further means test analysis. If you live in Georgia and your gross household income is above these figures, then you must run the means test to determine if you qualify for Chapter 7 bankruptcy relief.

Calculating Median Income

The U.S. Bankruptcy Code defines how to calculate income for purposes of bankruptcy. It operates off of the presumption that your ability to pay back your debts in the future should be determined by your average income over the past 6-months. This calculation using a 6-month look back period does not account for your present circumstances, including recent decreases in your income.

Income for the purposes of the means test is calculated by taking your average income for the past 6-months. The calculation must include all income that you receive. However, the following benefits are excluded from the means test calculation of income: social security benefits, payments to victims of war crimes or crimes against humanity, and payments to victims of international terrorism or domestic terrorism.

Calculating the Means Test

The means test calculation considers your income minus allowable expenses. Essentially looking at your ability to fund a Chapter 13 re-payment plan.

The allowable expenses in the means test are calculated based on a mix of your actual expenses and standard pre-determined expenses. You can explore the official means test form here. An experienced bankruptcy attorney can help you navigate through the means test.

We are here to help you determine if you qualify for bankruptcy, and if so, what bankruptcy chapter will best serve your needs. We offer free consultations to anyone in Savannah, GA and all of the surrounding areas.

 

We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.

READ MORE