To qualify for Chapter 7 bankruptcy, your disposable income must be low enough to pass the means test.
To qualify for a chapter 7 bankruptcy, debtors must now pass a “means test”. What the means test does is compare a potential debtor’s income with the local average. If the potential debtor’s income is considered above this local average, then they are called “above the median” and there is a presumption that they should be in a Chapter 13 and paying back some debts.
The purpose of the means test is to prevent debtors with high incomes – and presumably with disposable monthly income – from wiping out all of their debts in a Chapter 7.
Median Family Income?
The original source for the State Median Family Income is the Census Bureau. The US Department of Justice regularly updates the Census Bureau’s Median Family Income Data and is accessible through this page. The Median Family Income varies by location. For zip code 66603 (Topeka, Kansas) a household size of 4 is 80,735.00/year, or a monthly income $6,728.
How to Calculate Your Income For The Means Test
Calculating household income is relatively straightforward. Gather up all sources of income over the last 6 months – pay checks, odd jobs, child support, pensions, retirements, workers compensation, etc. For example: If your household of 4 earned $30,000 in the last 6 months, your income is projected to be $60,000 for the year. Compared to the Median Family Income for a household size of 4 ($80,735/year) – you would presumptively qualify. An online means test calculator can be found here.
Above The Median?
If your household income exceeds the median income for the same household size it is still possible to qualify for chapter 7 bankruptcy. The next step to to complete the rest of the means test. The second part of the means test is significantly more complex than simply adding up income. There are many types of deductions that can be used to lower disposable monthly income. Some can be overridden, others are only applicable depending on the chapter of bankruptcy. If you are above median and want to file chapter 7 bankruptcy, it is recommended you speak to an attorney.
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