New Bankruptcy Reform Means Test
Author: Jeffery J. Aleman
With the new bankruptcy laws in effect, debtors have to first pass a two-part means test before filing for Chapter 7 bankruptcy. First, a quick definition of Means Test:
Means = Money, property, or other wealth (source: Dictionary.com)
Your Income Vs. Your States Median Income
In the first part of the means test, your monthly income multiplied by 12 is compared to your states median annual income. Your states median income would be below your states highest incomes and above your states lowest incomes.
If your income falls at or below your states monthly median income, then your Chapter 7 bankruptcy filing will likely be successful. On the other hand, if your monthly income does not fall below your states median income, then your income will then be factored into a formula. Your formula results will determine your ability to file for Chapter 7 bankruptcy.
Means Test Formula
Under the Means Test, any creditor, trustee or judge will look at your monthly income, minus certain living expenses like food and rent. Your Chapter 7 bankruptcy will likely be successful if you are unable to pay at least $6,000 over the next five years ($100 per month). However, if you can pay at least $10,000 over five years ($166.67 per month or more) your Chapter 7 bankruptcy will likely be denied.
If you could afford more than $6,000 but less than $10,000 over five years, then a mathematical calculation determines whether your Chapter 7 filing will likely be successful or not. If you could afford to pay 25% or more of your unsecured debt, then a Chapter 7 will likely be denied. If you cant afford to pay 25% of your unsecured debt, your Chapter 7 filing will likely be successful. Examples of unsecured debts would include medical and credit card bills. Note that you can still opt for Chapter 13 in either of these cases.
Conclusion
You should be aware that the new bankruptcy law lets the government decide what is best for you. The updates take away discretion from the Judges to judge cases based on individual circumstances. It is doubtful that the courts can make exceptions for results.
Jeffery J. Aleman is a managing partner with Legal Helpers specializing in consumer bankruptcy law.
www.legalhelpers.com, the law firm of Macey & Aleman, is one of the nations largest consumer bankruptcy firms. For more articles on bankruptcy, visit the Legal Helpers Bankruptcy Resource Center. Legal Helpers can be contacted by phone, 888-743-5787 or by email, info@LegalHelpers.com.
