The Chapter 7 Means Test
This test was designed to screen people away from Chapter 7 “straight bankruptcy” and towards Chapter 13 “adjustment of debts.” Those who could afford to pay a meaningful amount to their creditors are legally required through the means test do so under Chapter 13 instead of being allowed to discharge (legally write off) their debts under
The means test looks at your income first, and then if necessary at your allowed expenses. If your income is less than the published median income for your family size in your state, then you pass the means test without needing to go through the expenses side of the test. Most people’s income IS less than their applicable median income, so the income side of the means test is often the most important part.
“Income” for purposes of the means test is determined in an unusual and very specific way: it 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. DON’T COUNT any money EITHER received during that part of the calendar month in which your case is filed OR that you received before that block of six calendar months.
Dealing with a One-Time Bump in Income
Because “income” includes money received from just about any source, and because of the oddly timed determination of income, receiving a single unusual chunk of income could push you over your median income threshold. There are three primary options if this happens.
After first determining that this extra chuck of money will indeed push you over median income (if not then the rest of this blog post does not apply to you), one option is for your bankruptcy case to be filed during the same calendar month in which that extra money arrived. As just explained, the income received earlier during the month that the Chapter 7 case is filed does not count for the means test.
The second option recognizes that often by the time you are aware of the problem created by the arrival of that extra money, the end of that month has come and gone, so it’s too late to use the first option. So the second option is to hold off on filing bankruptcy long enough until the date you received that extra money is before your applicable 6 full calendar month income period. Then that extra income no longer counts as income for the means test.
That delay in filing can be easy when your creditors are not being aggressive but can be quite difficult if they are. You need the advice of an experienced attorney to create a sound timing game plan, and to make any necessary adjustments as circumstances develop.
The final option is to go ahead and file the bankruptcy case in spite of being over the applicable median income, by still passing the means test after going through the expenses side of the test. How the allowed expenses are determined is quite complicated. With some expenses you can use your actual expenses (medical and child care), some expenses use published IRS Local Standard Expenses (such as housing and transportation), and others use IRS National Standard Expenses (such as food and clothing). This last option definitely requires the help of a thoroughly knowledgeable bankruptcy attorney.
If you live in New Jersey, the Law Office of Andrew B. Finberg can apply the means test to your unique situation. Our initial consultation is free and creates no obligation. So please call us at (856) 208-4152 to schedule it. Or use this contact form if you prefer. Thank you. We look forward to serving you.