What are the Bankruptcy Means tests and what do they do?
A means test is a key element in any bankruptcy filing. The means test is a crucial factor in determining the chapter of bankruptcy that can be filed and, in some cases, the duration of the bankruptcy. The primary factor considered by the means test, is income. Specifically, the income earned within the six months preceding the filing. When conducting a means-test, not all income will be viewed the same. All income must be declared, but only certain types of income are relevant when determining the chapter of bankruptcy you can file or the length of time you will be involved in a bankruptcy.
In general, income from sources like Social Security, VA Disability and VA Retirement are not included in the calculation to determine filing eligibility and commitment duration. Income from sources like employment, self-employment and business and investment earnings are all considered. This naturally leads to a question: What is determined by the means-test evaluating these sources of income? What time period is taken into consideration when evaluating them?
In terms of time, the lookback period is 6 months. The last six months completed immediately preceding a bankruptcy filing. If a bankruptcy was filed in mid-January, the means test would look at the income earned from July to December. How is this done? In general, all incomes are combined into a single grant amount, which is then divided by 6. This will give you your average monthly income for the six months before filing. It is important to note that this includes not only your income but also the income of your spouse (regardless if they are filing as well).
Once you have determined the average income, the next step is to determine if it is above or below median. Median income is calculated by looking at what a typical household of the same size in the state you live in earns. If you are married with two children and live at Blaine, your median income will be determined by what a typical Minnesota family of four earns or receives each month. The IRS tracks and reports median income, which is published four times a year.
Determining if you are over or below median income accomplishes two main things: First, it establishes whether or not you’re eligible to file for Chapter 7 bankruptcy. Second, for those considering a Chapter 13 bankruptcy, it helps determine the minimum time a Chapter 13 plan should run. It is important to note that, although the means test can be used as a guideline for which chapter you are eligible to file, this is only a presumption. This presumption can be overturned in certain situations. The means test is a complex process that involves many factors. It can affect a bankruptcy in several different ways. Our firm is highly experienced in evaluating and determining the impact of these factors on a bankruptcy filing. Call us if you’re curious to learn how the means test may apply to your situation. Call us now for a free strategy session with a MN bankruptcy lawyer at LIFEBACK LAW FIRMS
We are happy to speak to you and would love to discuss the benefits of a possible filing. So, when the time is right, or when you are ready, please don’t hesitate to reach out to Minnesota’s most kind and helpful bankruptcy law firm by going now to
www.lifebacklaw.com
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