The means test and bankruptcy blogIf you’re considering filing for bankruptcy, you may have already heard of the Means Test. The Means Test is used to determine if you qualify for Chapter 7 bankruptcy. If it is conducted incorrectly, your case may be dismissed. Understanding what expenses can be used on the Means Test to help you qualify for Chapter 7 bankruptcy is the best way to ensure that that doesn’t happen. 

When Do I Need to Take the Means Test?

The Means Test is usually used as a backup method for qualifying for Chapter 7 bankruptcy when the person seeking to file makes more than the state median income. If so, there will be a section on the filer’s petition showing their Means Test calculation. The trustee will review this section of the petition to make sure that the expenses the filer has listed are reasonable and fall within court guidelines. 

Expenses to Use on the Means Test in Arizona

The first step to conducting the Means Test is finding you (and your spouse’s, if you are married) income over the past 6 months and averaging it. That number is called your average monthly income. Your average monthly income is used to determine if you are eligible to file a Chapter 7 bankruptcy or if you may be better suited for a Chapter 13 bankruptcy. An experienced AZ bankruptcy lawyer can assist you with a Bankruptcy Means Test.

The following expenses can be subtracted from your average monthly income to find what is known as your disposable monthly income:

  • Involuntary Deductions: Your employer may have a mandatory retirement contribution plan, or you may be a member of a union and dues are automatically deducted from your paycheck. If your employer deducts the price of your uniform from your paycheck, that can also be used for this portion of the Means Test. 
  • Taxes: If you have elected a higher tax percentage, you’ll probably want credit for that if you are just on the border of qualifying for Chapter 7. As long as you have to pay taxes on your income, you can use that for a mandatory expense on the Means Test. 
  • Voluntary Deductions: Some paycheck deductions aren’t Qualifying for Chapter 7 bloginvoluntary per se, but the bankruptcy court acknowledges they are difficult to live without. Health, disability, and life insurance can usually be used in the Means Test for Chapter 7 qualification. 
  • Domestic Obligations: It would be impossible to formulate a debt payment plan without factoring in how much the filer pays each month in child and spousal support. These payments are difficult to modify once calculated, and can’t be discharged in bankruptcy. It is easier to prove these expenses are paid and reasonably calculated if they are court ordered. 
  • Medical Expenses: Most out-of-pocket medical expenses can be deducted on the Means Test. You should be gathering your medical bills regardless of if you are using the Means Test to qualify. 
  • Secured Debts: Payments on financed assets like our car or home can be included if they are reasonable. However, the amount Arizona courts allow is quite low. The mortgage for a single filer may be $1030 and increases for each family member added- but it maxes out at around $1400. If you don’t own your house or vehicle, the payments you make for rent and public transportation can be used instead. 
  • Charitable Contributions: Some religions strongly encourage their followers to donate a standard percentage of their earnings. Tithes and other such donations may be included in the Means Test, but the filer should expect to be required to show evidence of past payments. This is to ensure that the filer isn’t claiming to be religious and make donations temporarily just to qualify for bankruptcy. 
  • Necessary Education Expenses: Your job may require you to continue your education without reimbursing you for it. If so, this expense can be included in the Means Test. If you have a disabled child whose education requires special expenses, these can be included as well. 
  • Care of elderly or disabled: Reasonable expenses contributed towards the care of an elderly or disabled relative or household member are considered necessary by the bankruptcy courts. 
  • Child Care: For many American families, employment for one or both parents simply isn’t possible without a babysitter, day care provider, or a similar child care professional. The amount the filer spends on child care will be compared with how much typical families in the area spend. 
  • Home energy, food, clothing, etc: The amount you are allotted for these types of expenses will vary based on the jurisdiction in which you file. 
  • Special and Emergency Circumstances: Sometimes, your life and financial situation can be turned upside down in an instant. Expenses stemming from natural disasters, violent crimes, etc., are allowable on the Means Test despite being unpredictable. 

What if My Means Test Results in a Positive Number?

You may still be able to qualify for Chapter 7 bankruptcy through the Means Test, even if your disposable monthly income is a positive number. You will proceed to the Presumption of Abuse section of your petition. Your disposable monthly income will be multiplied by 60, or 5 years. If that number is less than $8,175, there is no presumption of abuse. If the number is more than $13,650, there is a presumption of abuse. This means the court automatically assumes that your income isn’t low enough to qualify for Chapter 7. If you reach a number in between $8,175 and $13,650, you will then need to calculate 25% of your unsecured non-priority debts. If that number is higher than your multiplied disposable monthly income, you will still be eligible. If you are unsure about any of the calculations described above, you need to speak with an experienced bankruptcy attorney. If your Means Test is conducted incorrectly and you don’t actually qualify, your case may be dismissed and you will have to refile a Chapter 13 bankruptcy instead. This will cost you extra time, stress, and filing and attorney’s fees. 

Times are Tough.  Our Arizona Debt Relief Lawyers can Help.

Millions of Americans have experienced drastic changes in their income in the past few months. If you are one of them, even if you aren’t ready to file bankruptcy, running a Means Test can help you determine if you will qualify for Chapter 7 bankruptcy once you are ready. If you can provide your paystubs, our experienced bankruptcy professionals can run a Means Test for you during a free consultation. The call is confidential and risk free, so the only thing you have to lose is your debt- call today! Arizona Zero Down Bankruptcy Attorneys: (602) 609-7000