Chapter 7 Bankruptcy Means Test: Everything You Need To Know
If you’re considering filing for bankruptcy, there’s a chance that you have already heard of the Means Test. The means test is a way to calculate how much income you have available to hypothetically pay your debts. It is relevant in both Chapter 7 and Chapter 13 bankruptcy. In the latter, it is used to determine how much the debtor will pay per month in a debt reorganization payment plan. In the former, the means test can be used for income qualification purposes. Means Test calculations can be complex, and are best conducted with the assistance of an experienced Phoenix bankruptcy lawyer. For your free consultation, call (480)833-8000 or use our online form to schedule.
Arizona Median Income
If you wish to file Chapter 7 bankruptcy in Arizona and make less than the median income for your family size, you won’t need to use the Means Test for income qualification purposes. You will use your average income over the last 6 months for comparison. If you are unmarried with no children, the median monthly income in Arizona is $4,653.25. This increases to $5,831.25, $6.296.67, $7,142.83, etc., for each added household member. Your spouse’s income will be combined with yours for Chapter 7 income qualification purposes, and adult children (absent special circumstances) will not count as household members. If you make more than the median income for your family size, you will need to pass the Means Test to qualify for Chapter 7 bankruptcy.
Allowable Expenses For The Means Test
The Means Test, simply put, consists of subtracting your necessary expenses from your average monthly income to find your disposable monthly income. However, bankruptcy courts only allow specific items to count as necessary expenses. You should confirm with an attorney that you are using amounts with the applicable allowances.
- Food, clothing, household items- This is capped at $723 for one person, $1,292 for two people, $1,4273 for three people, and so on.
- Out of pocket health expenses- those who are 65 and older have a higher allowance for out of pocket health expenses.
- Housing insurance
- Monthly mortgage or rent, operating expenses- This varies by county in Arizona. For example, the allowance for a family of one in Maricopa County is $1,580, but is $1,383 in Pima County. The allowances increase for each additional family member in every county.
- Vehicle operating expense- Gas, maintenance, toll roads, etc.
- Vehicle ownership and lease expenses
- Public transportation expense- if you don’t own your own vehicle
- Taxes- federal, state, and local
- Involuntary deductions- retirement contributions, uniform fees, union dues, etc. (Not voluntary contributions)
- Life insurance monthly premiums
- Court-ordered payments- the most common of these are child and spousal support
- Education- this must be required as a condition for your job, or must be for a disabled dependent when public services aren’t available.
- Childcare- babysitting, daycare, nursery, and preschool
- Health insurance, health savings account, disability insurance
- Continuing contributions to the care of family members- these are costs that come from caring for an elderly, disabled, or chronically ill relative or household member. This can include contributions to an ABLE program.
- Protection against family violence- The standards of whom qualify for this protection are laid out by the Family Violence Prevention and Services Act.
- Continuing charitable contributions
Determining Whether There Is a Presumption Of Abuse To Qualify For Chapter 7 Bankruptcy
Once you have calculated your disposable monthly income, you will multiply that number by 60. This represents your disposable monthly income over the course of 5 years. If the number you reach is less than $8,175, there is no presumption of abuse, and you will qualify for Chapter 7 bankruptcy. Any amount more than $8,175 will require further calculations.
If your disposable monthly income for five years is calculated to be somewhere between $8,175 and $13,650, you will calculate 25% of your total nonpriority unsecured (dischargeable) debt. If your five years’ disposable monthly income is insufficient to pay 25% of your dischargeable debts, you will qualify for Chapter 7. If your disposable income can pay at least 25% of your debts, you will need to show special circumstances that justify additional expenses and adjustments. You will also need to show these special circumstances if your five years’ disposable monthly income is higher than $13,650.
Exemption From Presumption of Abuse
After calculating your 5 years’ disposable income, the number you reach may leave you with a presumption of abuse. This essentially means failing the Means Test, and disqualification from Chapter 7 bankruptcy. However, there are a few exemptions that may apply, making you eligible to file Chapter 7 in Arizona.
The first exemption is for non-consumer debts. If your debts are largely from a business, or otherwise weren’t incurred for a personal, family, or household purpose, they are exempt.
There are also military service exemptions. If you are a disabled veteran, and your debts were largely incurred while on active duty or while performing a homeland defense activity, the exemption applies. The exemption also applies to some reservists and members of the National Guard.
There are four circumstances that would make someone eligible for this exemption:
- Called to active duty after September 11, 2001 for at least 90 days and remain on active duty
- Called to active duty before September 11, 2001 for at least 90 days and released from service less than 540 days before bankruptcy filing
- Performing homeland defense activity for at least 90 days
- Performed a homeland defense activity for at least 90 days which ended less than 540 days before bankruptcy filing
Easy enough, right? Not exactly. The Means Test can be complex and difficult to complete. Doing so incorrectly can result in negative consequences of your case being dismissed. This will cause you inconvenience, stress, extra fees, and put your assets at risk if you temporarily lose the protection of the automatic stay. That’s why it’s best to calculate your Means Test with the help of an experienced Phoenix bankruptcy attorney.
Deciding To File Bankruptcy Chapter 7: Contact An Experienced Phoenix Bankruptcy Attorney
You may have made the decision to file Chapter 7 bankruptcy yourself because paying for an attorney, before your case is filed, seems impossible. That’s why our Phoenix Bankruptcy attorneys offer payment plans specially designed to work for our clients. You can pay for your bankruptcy AFTER your case is filed in affordable payments for up to 12 months, zero interest. Your timely payments will even help boost your credit score after your debts are discharged. To learn more, call (480) 833-8000 or use our online form to schedule your free consultation today.
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