To qualify for Chapter 7 “straight bankruptcy” you must pass the means test. Otherwise you would likely end up in the much more time-consuming and expensive Chapter 13 “adjustment of debts.” Chapter 13 is great if you need its benefits, but not if you are forced into it and would prefer the much simpler fresh financial start of Chapter 7.
Taking Advantage of the Odd Means Test Definition of “Income”
The key to the means test for our purposes here is the odd and very precise way it defines “income.” Understanding this definition enables us to use it to your benefit for passing the means test. As stated in a very recent blog post, “income” is calculated by combining all income and funds that you received from virtually any sources (except through Social Security) during the last 6 FULL calendar months before the date you file bankruptcy, then doubling that amount.
So the means test does not count as “income” the money you received during the partial month that your bankruptcy case is filed—for example, if your case is filed on October 26, whatever money you receive from October 1 through 26 is not counted. Also, any future anticipated money is also not counted—in the above example, any money received after October 26 is not counted.
These limitations on the definition of “income” can benefit you in the following scenarios.
Lump Sum Just Received or About to Be Received
If in the last few days you have received an unusual sum of money, or expect to do so shortly, you should consider seeing an attorney about filing bankruptcy right away. That lump sum payment may push your “income” above the published median income for your state and family size, but only if that lump sum is counted. It would not be counted if you filed bankruptcy either during the same calendar month that you received that lump sum, or even before you received it.
Anticipated Increase in Income
Your income of the last 6 months may have been below median income for your state and family size—for example if you were unemployed during parts of that 6 months—but you may expect an increase in income soon—if you are about to start a new job or one that pays more. If this applies to you, you should consider seeing an attorney about filing bankruptcy right away, before the increased income starts being counted for the means test.
Recent Increase in Income
Even if you have already started a new job or one with higher income, it may not be too late to pass the means test. Because “income” is measured based on the last six full calendar months—essentially an averaging of the money you received during that period—a higher “income” during the last few months may well be sufficiently offset by the lower income of the first few months.
If you live in New Jersey, the Law Office of Andrew B. Finberg can apply the means test to your unique situation and advise you about the best way to pass it. At a free, no-obligation initial consultation meeting we will review your options with you. Acting quickly can be crucial, so please call us at (856) 208-4152 to schedule it. Or use this contact form instead.
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