If you are struggling under an overwhelming pile of debt, filing for Chapter 7 bankruptcy can be an excellent solution to help you start over and regain control of your finances. The Bankruptcy Code requires that you meet certain criteria before you may qualify for Chapter 7 bankruptcy. To determine if you are eligible, courts use a test that is commonly referred to as the “means test.” The government aim of the means test is to keep people who make a large amount of income from filing for Chapter 7 bankruptcy. However, even if you earn significant income, an experienced bankruptcy attorney can help you qualify for Chapter 7.
What does the means test entail?
First, the means test measures whether your income is above or below the median income for a similar household in Missouri. The U.S. Department of Justice regularly updates the median income for each state here. For the means test, income may include the following:
- Hourly wages, salary, bonuses, commission
- Net profits from self-employment
- Net profits from rental properties
- Pensions and other retirement income
- Annuity payments
- Child or spousal support
- Unemployment compensation
- Disability benefits
If your monthly income is below the median, you automatically qualify for Chapter 7; if not, you will require additional calculations for your means test.
Determining disposable income
Additional calculations will determine your disposable income, or the income left over after you pay your qualified expenses and debts. For certain expenses, you will have to use a national or local standard deduction, which are regularly updated by the Department of Justice. For example, you must use national standards for food, healthcare, clothing, housekeeping supplies, and other personal items and services. You must use a local standard for deductions such as housing, utilities, and transportation expenses.
For other expenses, you will enter the amount you actually pay. These include taxes, payroll deductions, life insurance premiums, childcare costs, and more. Finally, you will deduct the monthly payments required for each of your debts. After deducting all of your debts and expenses, if your leftover income is below a certain amount, you will qualify for Chapter 7. If your final amount is too high, you will not be able to file for Chapter 7.
Many people make mistakes on their means test that may significantly skew their results and wrongfully disqualify them from Chapter 7 bankruptcy. The attorneys at the Law Office of Kenneth P. Carp know how to ensure your means test is completed correctly and thoroughly to help people with higher income qualify for Chapter 7. If you are considering filing for bankruptcy, do not hesitate to call our office at 636-947-3600 today.