When the bankruptcy laws changed in 2005, one of the major changes was adding in what is known as the “bankruptcy means test”. The means test is basically a formula to determine if you are eligible to file for Chapter 7 bankruptcy. Not everyone is subject to the means test. For example, if a majority of your debts are non-consumer debts, the means test won’t apply. This is typically a factor when someone is filing bankruptcy due to business type debts. Also, you will not be subject to the means test if your income falls below the median income for your state and household size.
Below is a list of the most common means test questions along with answers:
What is the median income for my household size?
As of 11/01/2014 , the median income for Washington residents is as follows:
Household Size / Annual Median Income:
1 = $52,384 5 = $92,886
2 = $65,802 6 = $100,986
3 = $74,428 7 = $109,086
4 = $84,786 8 = $117,186
If a person filing bankruptcy in Washington falls below those figures, then they will not be subject to the means test formula and may generally proceed with a chapter 7 bankruptcy case. For example, Joe and Judy Smith want to file chapter 7 bankruptcy. They have two minor children that live with them full time. Their only income is Joe’s job and he makes a flat salary of $55,000 per year. Since their income is below the median income for their household size (below $84,786) there would be no need for the Smith’s to have to complete a means test to qualify for the chapter 7.
How is the median income calculated?
For the bankruptcy means test the gross median income is calculated by looking at the debtor’s prior 6 months of gross income. That total amount is multiplied by two to come up with the annual figure that is used for the means test. The prior 6 months does not include the month that the bankruptcy is filed. For example, if a debtor is filing bankruptcy in November, the six months that count to determine the debtor’s median income are May through October. If a debtor earned a total of $30,000 for those 6 months, their median income for purposes of the bankruptcy means test would be $60,000.
What if my income is above the median? Is chapter 7 not an option?
Just because your income is above the gross median income does not mean that you can’t do a chapter 7. It simply means that you must “pass” the bankruptcy means test in order to qualify. I have several clients who can still file chapter 7 when their income is above the median income in Washington. It is just a bit trickier. Having an experienced bankruptcy attorney is critical to properly complete the means test. It is essentially a complicated 7 page formula that requires a lot of attention to detail and knowledge of bankruptcy law. Fortunately our firm has handled thousands of cases and are very familiar with all of the nuances of the bankruptcy means test.
Does the means test matter in chapter 13 bankruptcy?
Yes, the means test can play a critical role in determine a chapter 13 bankruptcy payment.It can work as a guide for the chapter 13 trustee and bankruptcy court to determine what a reasonable chapter 13 plan payment should be in a case.
Can I run a means test on my own?
It is very difficult to do an accurate means test if you are not familiar with bankruptcy law. The means test can also be interpreted differently by different bankruptcy trustees and courts. It is best to have an experienced bankruptcy attorney complete the bankruptcy means test for you. Our office will generally be able to run a means test for a very low fee to get a feel for whether our clients will be able to file chapter 7 and/or help determine what a chapter 13 payment would be.
