Do you need to file a Chapter 7 bankruptcy? If so, then it’s imperative you understand how the bankruptcy means test and how Chapter 7 means test calculators work.
Chapter 7 means test is divided into two parts. The first part is one that uses IRS figures to determine whether you should get a discharge or not. Another part of the means test makes use of your real expense.
Generally, a Chapter 7 means test calculator follows the same format as the one for the US government. In this Chapter 7 means test calculator, we’ll use Chapter 7 Statement of your Current Monthly Income. We’ll also use Chapter 7 Means Test Calculation bankruptcy form for a Chapter 7 means test calculator.
How Do Chapter 7 Means Test Calculators Work
Bankruptcy is a mechanism crafted by the government to help the court determine whether a debtor can make requisite debt payment in Chapter 7 bankruptcy or not. A simpler definition is that the Bankruptcy Means Test is a test to determine who qualifies for bankruptcy.
Chapter 7 bankruptcy is more commonly called liquidation bankruptcy, and this is mainly for the fact that assets that are not covered by Chapter 7 bankruptcy exemption are liquidated, and the money is paid to creditors.
Your household income is important when calculating the bankruptcy means test. A way to find out your household income required to get a discharge is via the bankruptcy means test. A bankruptcy means test calculator uses the latest Census Bureau Median Family income–a figure provided by the Department of Justice as a guideline to determine who gets a discharge. The latest guideline took effect on May 15, 2021. Thus, you might want to check before carrying out your means test calculation to ensure that another figure isn’t out yet. The official bankruptcy form (form 122–1) explains how income is calculated.
However, it’s worthy of note that you may be given a Chapter 7 bankruptcy discharge even when your income is above the mean income of your state–this exemption is highly dependent on a range of factors.
Finally, some incomes including social security income may not be included in the income calculation.
How Your Income Compares Official Means Test Allowables
Before an individual can get a Chapter 7 bankruptcy discharge, such persons may need to meet all guidelines as it pertains to their state of residence. Among these strict requirements is that their income must not exceed a specific amount according to the number of people in the household. What do we mean? For households with 4 members, the income requirement is higher than households with 2 members. So you might want to check for the specific requirement that binds you.
1. Bankruptcy Means Test: Using IRS Accepted Figures
In an instance where your state’s average income exceeds your monthly income, then it means that you’ve exceeded the first stage of your bankruptcy means test, and you may not need to take another test. In such instances, you may get a chapter 7 bankruptcy discharge.
However, you should have it at the back of your mind that passing this test doesn’t guarantee that you will be issued a bankruptcy discharge. It, however, makes a discharge highly likely.
You’ll be mandated to sign some forms before a court before being given a discharge. Among the gamut of forms you’re to potentially fill out Schedule I, Schedule J, and an expense detailing form.
In a scenario where you have a significant amount as your disposable income after detailing your monthly expenses, then the bankruptcy court will require that you provide them with more information.
2. Bankruptcy Means Test: Using Actual Expenses
In certain scenarios, the bankruptcy court may permit you to remove some expenses since you’ve passed the Chapter 7 means test. Among those deductible expenses are car loans, childcare, health insurance, and mortgage loans.
Let’s assume you’re a high-income earner that earns above your state’s median income. You may still qualify for a bankruptcy discharge if you have a little amount left in disposable income. Here’s a list of expenses you can deduct while calculating your means test. This list is a sample, so you can check the official bankruptcy forms for the expenses.
- Secured debts on cars and home
- Donations made to charitable causes
- Utility expenses
- Transportation expenses
- Child Care expense
As implied earlier in the article, the amount you’re allowed to deduct in calculating your disposable income is solely dependent on the people in your household. To understand the exact figure you’ll need for this; it’s best to refer to current national standards.
Suppose the calculator above indicates that you don’t qualify for a bankruptcy discharge. Then it’s best to take Chapter 7 Above Median Calculator. Chapter 7 means calculator makes use of Part 2 of the mean test–this calculator uses this means test by using the content of 2 important bankruptcy forms: Chapter 7 means test calculation and the Statement of exemption from the presumption of abuse under §707(b)(2).
Chapter 7 qualification is complicated. A Chapter 7 means test calculator uses the bankruptcy means test calculators to help you estimate qualification. These free calculators are based on the official forms to be of assistance.