Taking A Closer Look At The Bankruptcy Means Test

30 November 2019
 Categories: , Blog

Filers who make more than the state's median income will need to go through an additional step before they can file their chapter 7 bankruptcy. The means test is part of the filing paperwork package for such filers, and it bears a closer look. Read on to find out more about this test that you must pass before you can file and get the debt relief you need.

Part One of the Means Test

The first step in complying with means testing is to compare your current income (going back for several months) to the median income in your state. The form (Form 122A-1) is an attempt to get a better idea of not just your income but about other issues. You will need to list all the people living in your household – whether they contribute income or not. If they do earn income, that has to be listed. The next step is to list income from all sources for the past six months. Finally, you must locate your state's median income for a comparison to your own income. As long as your income is at or below the state's median, you don't need to go any further with the means test – you are free to file your chapter 7 bankruptcy.

Part Two of the Means Test

If your income exceeds the median income of your state, you must complete the second part of the means test. This part of the test is all about using certain qualified deductions to effectively reduce your income for filing purposes. This is also the part of the form where many filers need help from a bankruptcy attorney to complete. After all, a lot is riding on the accurate completion of your expenses, but the allowed deductions are based on IRS rules. In addition, you are under oath to complete the form accurately. If you make a mistake, you might miss out on the opportunity to file bankruptcy, or you might even be accused of bankruptcy fraud.

Using the Deductions

If you have enough qualified deductions, you can file even with an income that is too high. Typical deductions are those that may be out of line with what others in your same income bracket pay. For example, if your mortgage is higher than the average, you might have a deduction. Other areas of your budget that could produce a deduction are childcare expenses, extraordinary medical expenses, those living in qualified disaster areas, and more.

Speak to your local bankruptcy attorney services for help with your bankruptcy paperwork before you make a serious mistake.