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.

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