If you have been researching bankruptcy, it is likely you have encountered information about the means test and how difficult it can be to qualify for chapter 7 bankruptcy. You may have even consulted with an attorney or paralegal who asked you your income and told you out of hand that you do not qualify. However, don’t despair…yet. You may not qualify, but if you were given a straightforward no without any analysis, then it is very likely you did not get complete information, and you may very well pass the means test.
Under BAPCA, the legislation passed by Congress in 2005 that significantly overhauled bankruptcy laws, the means test was created to supposedly “level the playing field.” It has not worked out that way for a variety of reasons that are outside the scope of this article. Theoretically, the means test sets “median income” lines in the sand. If you’re above the line, you can’t file chapter 7. Below the line, you can. Many people look at their income for the last six months, compare it to that line in the sand, and if they are above, conclude that they cannot file a 7.
However, this analysis is simply wrong. The line in the sand isn’t just your income, it is your income minus over 60 deductions. Some of these deductions are set by IRS guidelines, others are set by your actual expenses.
What does this mean for you? It means that if someone told you that your income was above that line without analyzing it, the information could be incorrect. Many, many people qualify for chapter 7 when their income is above that line before the deductions. There are also several special circumstances when you could be above the line after the deductions and still qualify.
Alternatively, you may have filled out a form on the internet that told you that you do not qualify. However, these forms do not take into account what deductions are allowed in which jurisdiction, and the differences in median income based on where you live. Some courts allow certain deductions, while some do not. You can’t get a one-size-fits all answer when it comes to the means test.
Think you have failed the means test? Unless you have spoken to an experienced bankruptcy attorney licensed in your state, who gave you that answer after collecting a lot of information from you, it is likely you do not know whether you passed or not. With the means test, experience counts. Hiring an attorney that specializes in bankruptcy can make the difference in getting correct information about your situation.
Think you failed the means test? Think again. If you live in Oregon or southwest Washington, call us to find out whether you really qualify for chapter 7 bankruptcy.