Qualifying for Chapter 7: The Means Test (Part I)

The most common types of bankruptcy filings for consumer debtors are Chapter 7 and Chapter 13.  Both of these types of bankruptcy cases have certain qualifying requirements.  This article discusses the requirements for a Chapter 7 bankruptcy.

In 2005 Congress revamped the Bankruptcy Code, adding certain requirements for consumer debtors.  For example, no matter what type of bankruptcy you file, if you are an individual (as opposed to a corporation or other entity), you must complete a Credit Counseling Course prior to filing your petition, and additionally complete a Debtor Education Course after your case is filed and before you receive your discharge.

In addition, in Chapter 7 cases, you must now pass the Means Test.  In this Part I of a series of articles on the Means Test, we will look at the Median Family Income.

The Means Test examines your household income (and certain allowed deductions) and compares it to the Median Family Income as published by the Census Bureau.  This number is updated every year and is specific to the State in which you file your bankruptcy.  For example, as of the writing of this article (May 2012), the Median Family Income in California is $49,188 for a household of one person, $63,481 for a two-person household and $77,167 for a four-person household.  This means that if you are married and have two children (under 18), and you and your wife make less than $77,167 combined per year, you will automatically pass the Means Test and qualify for a Chapter 7.  If, however, you make more than that amount, you may still be able to qualify for a Chapter 7 bankruptcy after certain deductions are taken (this will be discussed in a future article).  On the other hand, if after all the deductions are taken, your income is still above the Median Family Income, you will most likely not qualify for a Chapter 7, but may still be able to file a Chapter 13 (depending on certain other criteria).

Several questions often come up as to the calculation of the household income:

Q: Do the qualifying figures change whether my spouse is working or not?
A: Your income is calculated as to your entire household.  If you are the only one working, you will enter that income into the Means Test.  If both you and your spouse are working, then your combined income is used.

Q: What if I file the bankruptcy on my own, without my spouse, what figures are used?
A: Whether you file the bankruptcy on your own or jointly with your spouse, the figures used in the Means Test do not change.  Your combined household income is used in the Means Test no matter whether you file alone or jointly.  Further, the Median Family Income figure is based on your State and family size, and does not change depending on whether or not you file the petition jointly.

Q: What if I am married and have more than 2 kids (family size is larger than 4)?
A: Assuming you file your petition in California, for each additional member of the family add $7,500 to the Median Family Income figure.  For example, if you are married and have 3 children, the Median Family Income for the purposes of the Means Test is $$84,667.

Q: Are only parents and children counted as family members?
A: If you are taking care of an elderly parent, for example, that person could potentially count as a member of the family for the purposes of the Means Test.

The above discussion gives you a general understanding of how the Income portion of the Means Test is calculated.  In future parts of this series of articles, we will examine other portions of the Means Test.  As always, before making any decisions or filing for bankruptcy, you should discuss your specific situation with a qualified bankruptcy attorney.

For More Information:

Is Chapter 7 Right for You?

It is not uncommon for a new client to come into my office and tell me, “I need to file for a Chapter 7.” My first question to such a statement is always “Why?” The response varies, but has a common theme: “Because I can’t pay my bills.”

Not being able to pay your bills is, of course, a factor in making the difficult decision of filing for bankruptcy. Once making that decision, however, the next decision is whether to file for Chapter 7 or Chapter 13 (other chapters also exist, but they are not relevant to most consumers). While this decision may be made for you — based on, for example, the amount of debt you have — often you will qualify for both chapters. In that case, you must decide which will be more beneficial to you.

The major and most basic difference between these two varieties of bankruptcy protection available to most consumers is that, in a Chapter 7, you effectively “raise your hands and quit,” informing your creditors that you simply have nothing left. If you do not own a house or other property, and your income is just enough to make ends meet but not enough to save each month, then a Chapter 7 will probably be the right choice for you.

In a Chapter 13, on the other hand, you essentially tell your creditors that, while you do have some limited means to pay, you cannot pay all of them everything you owe. In filing a bankruptcy under Chapter 13, you propose a payment Plan, under which you promise to pay a certain amount each month to the Chapter 13 Trustee (assigned by the court and an employee of the Department of Justice), who then will distribute these funds to creditors. You will do so for 3 to 5 years and each of your creditors will get a portion of its debt paid off. At the conclusion of the Plan, any remaining
debts are wiped out.

So which chapter is right for you? While you should not decide the answer to this questions without speaking to a qualified bankruptcy attorney, the simple answer is that if you have no assets and
little income, you would probably end up in a Chapter 7. On the other hand, if you have assets, or your income is above the qualifying maximum income for a Chapter 7, a Chapter 13 may be right for
you.

DMV’s 10-Day Rule

What is the DMV 10 Day Rule?

If you have recently been arrested for a DUI, you should keep in mind the DMV 10 Day Rule – You have exactly ten (10) days from the date of your arrest to setup your DMV administrative hearing regarding the suspension of your driver’s license.  (10 days includes weekends and holidays.)  If you miss this deadline, your suspension with the DMV will be automatic.  If you are already past the 10 days, yet have failed to setup the DMV hearing, contact us immediately, there is still hope to setup your DMV hearing and avoid the automatic suspension.

 

Netzah & Shem-Tov can help set up your DMV hearing Contact us today!